A rent control has been imposed on the market for rental housing in a country.If the long run supply curve in this competitive market is more price elastic than the short run supply curve,it implies that:
A)the deadweight loss of the rent control is higher in the long run compared to the short run.
B)the deadweight loss of the rent control is higher in the short run compared to the long run.
C)the deadweight loss of the rent control is zero in the long run.
D)the deadweight loss of the rent control is zero in the short run.

Question

Quizplus · Accepted Answer

The imposition of rent control will lead to a situation where the price of rental housing is fixed below the market-clearing price. This will result in a shortage of housing units in the market in the short run. In the short run, the supply curve of rental housing is relatively inelastic as it is difficult for landlords to increase the supply of housing units in response to the artificially low rent. As a result, the shortage of housing units will persist, leading to a deadweight loss.

However, in the long run, landlords are better able to respond to the low rent by decreasing the supply of housing units or by converting them into other uses. This makes the long run supply curve of housing more price elastic than the short run supply curve. A more price elastic supply curve means that the deadweight loss in the long run will be higher compared to the short run as a result of the shortage of housing units being resolved by landlords leaving the market. Therefore, option A is the correct answer.

A Rent Control Has Been Imposed on the Market for Rental