5. How Rent Control Causes InefficiencySuppose the following graph shows the demand for and supply of flats in a country.Determine the equilibrium monthly rent and quantity of flats in the absence of price controls. Based on this, use the green triangle (triangle symbols) to shade the area representing consumer surplus at the equilibrium rent. Then use the purple triangle (diamond symbols) to shade the area representing producer surplus at the equilibrium rent. Supply3800CS w/ Rent Control34003000PS w/ Rent Control2600Deadweight Loss2200Demand18000.81.62.43.24.0QUANTITY OF FLATS (Millions per year)In the presence of the rent control, consumer surplusbyper year and producer surplusbyper year. The price ceiling on rent causesv per year of deadweight loss. Therefore, using total surplus as ameasure of society's well-being, rent control lawsin society's best interest.Apart from a shortage of rental property, rent controls also lead to other inefficiencies. Consider the following scenario:MONTHLY RENT (Euros per flat) Apart from a shortage of rental property, rent controls also lead to other inefficiencies. Consider the following scenario:Felix and Janet live in a huge four-bedroom house. The property is rent controlled and there a number of rooms which are rarely used. The last of Felixand Janet's children moved out of the house three years ago. Larry and Megan live in a small one-bedroom rent-controlled property. It was fine whenthey were just married, but now they have a small child with another on the way.The above situation is an illustration of which of the following rent control effects?O Reduction in quality of rental propertyO Lost gains from tradeO Wasteful lines and other search costsO Misallocation of resources

Equilibrium monthly rent and Quantity of flats will be determined on the basis of the equilibrium…

Answered: How Rent Control Causes Inefficiency…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter7: Market Efficiency And Welfare

Section: Chapter Questions

Problem 5P

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5. How Rent Control Causes Inefficiency Suppose the following graph shows the demand for and supply of flats in a country. Determine the equilibrium monthly rent and quantity of flats in the absence of price controls. Based on this, use the green triangle (triangle symbols) to shade the area representing consumer surplus at the equilibrium rent. Then use the purple triangle (diamond symbols) to shade the area representing producer surplus at the equilibrium rent.

Supply
3800
CS w/ Rent Control
3400
3000
PS w/ Rent Control
2600
Deadweight Loss
2200
Demand
1800
0.8
1.6
2.4
3.2
4.0
QUANTITY OF FLATS (Millions per year)
In the presence of the rent control, consumer surplus
by
per year and producer surplus
by
per year. The price ceiling on rent causes
v per year of deadweight loss. Therefore, using total surplus as a
measure of society's well-being, rent control laws
in society's best interest.
Apart from a shortage of rental property, rent controls also lead to other inefficiencies. Consider the following scenario:
MONTHLY RENT (Euros per flat)

Apart from a shortage of rental property, rent controls also lead to other inefficiencies. Consider the following scenario:
Felix and Janet live in a huge four-bedroom house. The property is rent controlled and there a number of rooms which are rarely used. The last of Felix
and Janet's children moved out of the house three years ago. Larry and Megan live in a small one-bedroom rent-controlled property. It was fine when
they were just married, but now they have a small child with another on the way.
The above situation is an illustration of which of the following rent control effects?
O Reduction in quality of rental property
O Lost gains from trade
O Wasteful lines and other search costs
O Misallocation of resources

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