BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The demand and supply will increase.
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The increased supply will create a surplus.
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The increased demand will create a shortage.
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The demand will decrease and the supply will increase.
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Detailed explanation-1: -If a local government sets an apartment rent control price below the equilibrium, then the increased demand will create a shortage. Thus, the correct option is C).
Detailed explanation-2: -A rent control set below the market equilibrium price will result in a reduction of rental units supplied in the market, assuming the supply is consistent with the law of supply.
Detailed explanation-3: -Rent controls force landlords to price apartments below the equilibrium price level. An immediate effect is a shortage (excess demand) of apartments, because the quantity of apartments demanded is greater than the quantity supplied at the regulated price.
Detailed explanation-4: -Rent controls compel landlords to price their houses below the equilibrium price level and reduce the prices of rental housing. It is usually a form of price ceiling placed on rent and rental housing. In the rent-controlled housing market, the rents paid decrease thereby reducing the number or quantity of houses.
Detailed explanation-5: -If the market price is below the equilibrium price, a shortage occurs because quantity demanded exceeds quantity supplied. Both the price and quantity supplied increase and quantity demanded decreases until the market clears at the equilibrium price.