Which of the following would most likely be true in a city with rent-controlled apartments?

• A. There will be a surplus of apartments as quantity supplied exceeds quantity demanded.
• B. Landlords will have an incentive to improve the quality of apartments.
• C. There will be a shortage of apartments as quantity demanded exceeds quantity supplied.
• D. The market rent will be higher than the rent-control price.

Answer: (C)

Verified step by step guidance

1. Step 1: Understand what rent control means. Rent control is a government-imposed price ceiling on rent, which sets the maximum rent landlords can charge below the market equilibrium price.
2. Step 2: Analyze the effect of a price ceiling set below the market equilibrium rent. Since the rent is artificially kept low, more people want to rent apartments (quantity demanded increases), but landlords are less willing to supply apartments at this lower price (quantity supplied decreases).
3. Step 3: Recognize the result of this imbalance. When quantity demanded exceeds quantity supplied, a shortage of apartments occurs because there are more renters looking for apartments than there are apartments available at the controlled rent.
4. Step 4: Evaluate the other options. A surplus would occur if the price was set above equilibrium, which is not the case here. Landlords typically have less incentive to improve quality under rent control because they cannot raise rents to cover improvement costs. The market rent is actually higher than the rent-control price, not the other way around.
5. Step 5: Conclude that the most likely true statement is that there will be a shortage of apartments as quantity demanded exceeds quantity supplied under rent control.