The introduction of rent controls could lead to which of the following?

• A. An increase in the quality of rental housing
• B. A surplus of rental housing as quantity supplied exceeds quantity demanded
• C. A decrease in the demand for rental housing
• D. A shortage of rental housing as quantity demanded exceeds quantity supplied

Answer: (D)

Verified step by step guidance

1. Understand the concept of rent control: Rent control is a government-imposed price ceiling on rental housing, which sets the maximum rent landlords can charge below the market equilibrium price.
2. Recall the effects of a price ceiling set below the equilibrium price: It typically leads to a higher quantity demanded and a lower quantity supplied because landlords receive less rent and may reduce the quantity or quality of rental housing offered.
3. Analyze the impact on quantity demanded and quantity supplied: Since the rent is artificially low, more people want to rent (increase in quantity demanded), but landlords are less willing to rent out properties (decrease in quantity supplied).
4. Identify the market outcome: When quantity demanded exceeds quantity supplied, a shortage occurs, meaning there are more renters looking for housing than available units.
5. Evaluate the incorrect options: Rent controls do not increase quality (often quality decreases), do not cause a surplus (which would require quantity supplied to exceed quantity demanded), and do not decrease demand (demand usually increases due to lower prices).