Question

Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. Prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. Which is likely to occur as a result of the price ceiling?

Answer 1

Explanation:

Due to the law, the maximum rent that has to be paid has decreases tp $750/ month. On the other hand, before the law, the landlord enjoy maximum profit by giving the same bedroom at $1750/month. This law definitely makes the landlord reducing the quality of the bedroom apartments and also not regular and good services which must be offered for a guest.

This case is an example of inefficiently low quality in which the sellers offer some low-quality services at the low price even by knowing the fact that the buyers prefer higher quality at the higher price.