Rent control reduces market efficiency if the maximum rents allowable are below the market equilibrium price.

Question

Quizplus · Accepted Answer

Market efficiency is achieved when prices are set at the equilibrium level where supply and demand are balanced. Rent control imposes a maximum rent that may be below the market equilibrium price, creating a shortage of rental units as landlords reduce the number of units they offer at the controlled price. This results in a mismatch between the quantity supplied and quantity demanded of rental units, leading to a reduction in market efficiency.

Rent Control Reduces Market Efficiency If the Maximum Rents Allowable