When apartment equilibrium rent is Rs500 per month and the government imposes a rent control ceiling of Rs250, which outcome is unlikely to occur?
Show answer Hide answer
Answer: E. the quality of apartments will improve
Explanation
Rent control ceilings create binding price restrictions that generally reduce maintenance and housing investment. Landlords facing capped revenues have fewer financial resources and incentives to maintain apartment quality. The correct option highlights the deterioration of housing quality as an unlikely positive outcome of controls. Price ceilings set below market equilibrium create persistent shortages where quantity demanded exceeds quantity supplied. Binding rent controls distort housing markets and lead to non-price rationing mechanisms among tenants. Property owners respond to reduced rental income by deferring necessary repairs and structural renovations.
Cities implement rent control to help low-income tenants, but unintended negative consequences frequently emerge over time. Urban housing shortages demonstrate the practical limitations of using price controls to achieve social welfare goals. Real estate markets often develop underground economies and informal allocation methods when price ceilings are imposed. Long lines and waiting lists frequently occur because excess demand persists under binding rent ceilings. Landlords often discriminate among prospective renters since excess demand allows them to choose preferred tenants. Bribes and key money frequently emerge as black market mechanisms when official rents are artificially restricted.
Related questions
Q1. Which economic phenomenon is illustrated when a falling price level raises real wages due to fixed nominal wage contracts, prompting firms to cut production?
Show answer Hide answer
Answer: A. sticky-wage theory of the short-run aggregate supply curve
Fixed nominal wage contracts prevent wages from falling immediately with prices. A falling price level unexpectedly raises the real cost of employing labor. Higher real labor costs prompt profit-maximizing firms to reduc...
Q2. If a new bicycle costs Rs300, Natalie values it at Rs400, and the producer's cost is Rs200, what is the total surplus generated if Natalie purchases the bike?
Show answer Hide answer
Answer: C. Rs200
Total surplus is the buyer's value minus the seller's cost, which is Rs 400 minus Rs 200, or Rs 200. The price only splits that surplus between them: Natalie keeps Rs 100 as consumer surplus and the producer keeps Rs 100...
Q3. What happens to the money supply if the central bank buys a government bond from an individual who deposits the full sale proceeds into their bank account?
Show answer Hide answer
Answer: A. rise by an amount that depends on the bank’s reserve ratio
When the central bank purchases a bond, bank reserves immediately increase by the exact transaction amount. Commercial banks lend out a portion of these new reserves, creating new checkable deposits through lending. The...
Q4. If both supply and demand for personal computers increase, with the supply increase outpacing the demand increase, what outcome is anticipated in the PC market?
Show answer Hide answer
Answer: D. the equilibrium quantity to rise and the equilibrium price to fall
Both supply and demand increases drive up the total equilibrium quantity. A larger supply increase exerts stronger downward pressure on the market price. The net effect of opposing price pressures results in a lower equi...
Q5. Assuming zero tariff on imported inputs, an input-to-final product value ratio of 0.5, and a nominal tariff of 10 percent on the final product, what is the effective tariff rate?
Show answer Hide answer
Answer: D. 20 percent
The effective rate of protection formula divides the nominal final tariff by one minus the input share. Substituting a ten percent final tariff and a zero input tariff yields ten percent divided by zero point five. The r...
Q6. Beginning from long-run equilibrium, how does a severe drought destroying wheat crops impact short-run prices and output within the aggregate supply and demand framework?
Show answer Hide answer
Answer: A. Price rise; output falls
A drought destroys crops and acts as a negative supply shock. The short-run aggregate supply curve shifts leftward, raising the price level. Reduced agricultural output leads to lower overall economic production. Negativ...