Question

6. Rent control

	a.	serves as an example of how a social problem can be alleviated or even solved by government policies.
	b.	serves as an example of a price ceiling.
	c.	is regarded by most economists as an efficient way of helping the poor.
	d.	is the most efficient way to allocate scarce housing resources.

why a is a wrong answer?

Answer 1

Answer

Option b

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Rent control is a maximum rent can a landlord charge, and it is effective if it is below the equilibrium wage, so it is price ceiling.

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It is not a social optimum or solution to the social problem because it creates a dewadweight loss in the economy.

It also creates more problems: Black market and low-quality apartments etc.

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A social problem solution should be Pareto efficient means it may or may not benefit anyone but should not harm.

but here, the rent control is creating deadweight loss so it is not a solution otherwise economy might work on support policies.