Suppose that a large city is investigating the elimination of rent controls on housing at a time when the vacancy rate is extremely low-only 1 percent of all apartments in the city are vacant.Which of the following is most likely to occur if rent controls are eliminated?
A)An increase in the demand for housing, followed by a decrease in the supply of housing.
B)An increase in rents, perhaps followed later by an increase in the supply of housing.
C)A decrease in rents and a decrease in the supply of housing.
D)No change in rents, since price controls are usually set where supply and demand intersect.
E)A decrease in the demand for housing, followed by a decrease in the supply of housing.

Question

Quizplus · Accepted Answer

Eliminating rent controls would likely lead to an increase in rents as landlords are able to charge higher rates in response to the high demand for housing. This increase in rents could later lead to an increase in the supply of housing as developers are incentivized to build more units, but this would likely take time. Therefore, option B is the most likely outcome in the short term after rent controls are eliminated.

Suppose That a Large City Is Investigating the Elimination of Rent