Answer to Question #269706 in Microeconomics for Madhu Gupta

Question

Explain the effects of rent control in the short and the long run. Why and

how do the effects vary over the period of time?

Answer 1

As with any price ceiling, a shortage is brought about by rent control. However, because supply and demand are inelastic in the short run, the initial shortage caused by rent control is minimal. The primary effect in the short run is to reduce rent.

The short run advantages become disadvantages in the long run.While rent control appears to aid current tenants in the short run, in the long run it decreases affordability, fuels gentrification,thus creating negative spillovers on the neighborhoods sorrounding.