Which of the following statements is true concerning the consequences of rent controls?

• A. Rent controls often lead to housing shortages because the quantity demanded exceeds the quantity supplied at the controlled price.
• B. Rent controls eliminate the possibility of black markets in the housing sector.
• C. Rent controls typically result in an increase in the quality of rental housing.
• D. Rent controls ensure that all renters can find affordable housing without any negative side effects.

Answer: (A)

Verified step by step guidance

1. Step 1: Understand what rent controls are — they are government-imposed price ceilings on rental housing, meaning landlords cannot charge rent above a certain level.
2. Step 2: Analyze the effect of a price ceiling set below the market equilibrium rent. This typically causes the quantity demanded of rental housing to increase because rents are cheaper, while the quantity supplied decreases because landlords may find it less profitable to rent out or maintain properties.
3. Step 3: Recognize that when quantity demanded exceeds quantity supplied, a shortage occurs. This means there are more renters looking for housing than there are available units at the controlled price.
4. Step 4: Consider the consequences of this shortage. It can lead to non-price rationing mechanisms such as long waiting lists, discrimination, or the emergence of black markets where housing is rented at higher prices unofficially.
5. Step 5: Evaluate the incorrect statements: rent controls do not eliminate black markets, often reduce incentives to maintain or improve housing quality, and do not guarantee that all renters find affordable housing without negative side effects.