Question 1 of 3

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true

You must read each slide, and complete any questions on the slide, in sequence.

Suppose it is decided that rent control in New York City will be abolished and that market rents will now prevail. Assume that all rental units are identical and so are offered at the same rent. To address the plight of residents who may be unable to pay the market rent, an income supplement will be paid to all low income households equal to the difference between the old controlled rent and the new market rent.

What effect will the elimination of the rent control have on quantity and quality of rental housing supplied?

Eliminating the rent control will cause both quantity supplied and housing quality to decrease.

Eliminating the rent control will cause quantity supplied to increase but housing quality will decrease.

Eliminating the rent control will cause quantity supplied to decrease but housing quality will improve.

Eliminating the rent control will cause both quantity supplied and housing quality to increase.

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What effect will an income supplement policy have on the market. What effect does it have on the market rent and quantity of rental housing supplied in comparison to your answers to part a?

The income supplement will cause supply to shift left causing the equilibrium quantity to decrease and rental price to increase.

The income supplement will cause supply to shift right causing the equilibrium quantity to increase and rental price to decrease.

The income supplement will cause demand to shift right causing the equilibrium quantity and rental price to increase.

The income supplement will cause demand to shift left causing the equilibrium quantity and rental price to decrease.

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Are tenants better off as a result of these policies?

Uncertain

Yes

It's uncertian if tenants are better or worse off as a result of these policies. Some tenants who previously could not get apartments can now do so, but at a higher rent. In particular, those tenants who do not receive the income supplement and who used to rent cheap apartments under the price ceiling are now worse off. For further review see section, “How a Price Ceiling Causes Inefficiency.”

Are landlords better off as a result of these policies?

Yes

Uncertain

Landlords are clearly better off as a result of these two policies: more landlords will rent out apartments and will receive a higher monthly rent. For further review see section, “How a Price Ceiling Causes Inefficiency.”

Is society better off as a result of these policies?

Yes

Uncertain

Society as a whole is better off because the deadweight loss caused by a price ceiling has been eliminated: there are now no missed gains from trade. For further review see section, “How a Price Ceiling Causes Inefficiency.”

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Question 1 of 3

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