Question

7. The market for rental housing in Berkeley is subject to rent-control. Before rent control, the compet itive equilibrium was at Pc and Q. Rent control limits the price a landlord can charge to P. The short-run supply curve is upwards sloping, and long-run supply is horizontal. (a) Is this a constant cost industry? Why? (b) What is the difference between the short-run and the long-run supply curve? (c) Comment on the efficiency of the competitive equilibrium. Is it Pareto Optimal? WHY? (d) What are the short-run efficiency and distributive effects of rent control? (e) What will be the m number of rental units in the long-run? Explain the transition. What are the long-run efficiency and distributive effects? Is the imposition of rent control a (f) Why has rent control been called the most effective way to destroy, short of bombing, the stock (g) What kinds of phenomena would you expect in the long-run to try and exploit any remaining (h) Provide a rationale for why we observe rent controls. potential Pareto improvement? Explain. of rental housing in a city? gains from trade?

Answer 1

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