Future Business Leader Achievments (FBLA) Economics Practice Exam

What is a likely consequence of rent controls imposed by city governments on apartments?

1. A surplus of apartments

2. A shortage of apartments

3. A decrease in the demand for apartments

4. An increase in the supply of apartments

The correct answer is: A shortage of apartments

Rent controls are regulations that set a maximum allowable rent for apartments, typically with the intention of making housing more affordable for residents. When rent controls are imposed, landlords may be discouraged from maintaining or improving their properties, as the maximum rent limits their potential profits. Additionally, potential investors might be hesitant to build new rental properties due to the capped prices, which can result in fewer new apartments being constructed. The consequence of these dynamics is often a shortage of apartments. When the price of rent is artificially held below the market equilibrium, demand for apartments tends to increase, as more people seek affordable housing. However, as the supply of available apartments does not keep pace due to landlords being unwilling or unable to invest in their properties or new developments, this leads to a mismatch where demand exceeds supply. Consequently, a shortage of apartments ensues, making it increasingly difficult for residents to find housing. This understanding illustrates why the proper answer identifies a shortage as a likely consequence of imposed rent controls.