Question

54. Suppose that the mayor of New York abolishes rent control. A friend of yours who lives in New York complains about the higher apartment rents that result. sult. This friend has never taken an apartment market is now more efficient because rent control has been abolished In your an deadweight loss while rent control was in place and after it was abolished by referencing the areas in the figure class. Explain to your friend why the is, be sure to reference consumer surplus, producer surplus, and Price ceiling Od Quantity (apartments per month)

Answer 1

when rent control was implemented, then even thought he prices were low but the market was not efficient. this is because there is mismatch between the quantity supplied and quantity demanded. the demand exceeds the supply. furthermore the quality of houses provide will not be good. furthermore there is a dead weight loss associated with the rent control

. earlier the consumer surplus was A+B+D

and producer surplus was H

And the deadweight loss was C+E

after the removal of rent law

the consumer surplus was A+B+C

and producer surplus was H+D+E

Hence we see that even though the price is more, but the market works more efficiently when the rent law is abolished