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A large city in the Eastern US is plagued with higher and higher rents. The average rent in the largest rental neighborhood is $2,000 per month. This neighborhood largely serves new residents to the city, mostly immigrants. Most of these residents cannot afford these rents, so the local government has determined that it will initiate a "price ceiling" or "rent control ceiling" at $1500. In other words, there are to be no rents above $1500 in this neighborhood. Given this information, answer the following questions:
Explain the likely market effects of this rent control strategy, using illustrative supply and demand curves with the numbers mentioned above.
Do you anticipate a surplus or shortage of rental housing in this neighborhood? Explain your response.
Longer term, will landlords be motivated to maintain quality housing in this neighborhood?
What may happen to the quality of the entire neighborhood over the long term if rent control is maintained for years to come? Explain.
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