Assume that the long-run supply of housing is highly elastic.The imposition of binding rent controls will lead to
A)a reduction in the housing shortage over time.
B)a worsening of the housing shortage over time.
C)no significant change in the housing shortage over time.
D)only a temporary housing shortage.
E)the price of rental housing to revert back to its free-market equilibrium level.

Question

Quizplus · Accepted Answer

If the long-run supply of housing is highly elastic, it means that the quantity of housing supplied can increase quickly in response to changes in demand or price. With the imposition of binding rent controls, the price of rental housing will be set below the equilibrium level, leading to an increase in demand for housing. As landlords cannot increase rent to match the higher demand, they may stop maintaining their properties or convert them to other uses. This will result in a reduction in the quantity and quality of rental housing available, worsening the housing shortage over time.

Assume That the Long-Run Supply of Housing Is Highly Elastic