Suppose That a Large City Is Investigating the Elimination of Rent

question 9

Multiple Choice

Suppose that a large city is investigating the elimination of rent controls on housing at a time when the vacancy rate is extremely low-only 1 percent of all apartments in the city are vacant.Which of the following is most likely to occur if rent controls are eliminated?

• A)An increase in the demand for housing, followed by a decrease in the supply of housing.
• B)An increase in rents, perhaps followed later by an increase in the supply of housing.
• C)A decrease in rents and a decrease in the supply of housing.
• D)No change in rents, since price controls are usually set where supply and demand intersect.
• E)A decrease in the demand for housing, followed by a decrease in the supply of housing.

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Definitions:

Tax Revenues

The income that is received by the government from taxpayers, including individuals and businesses, to fund public expenditures.

Deadweight Loss

The loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable.

Marginal Tax Rate

The rate at which your last dollar of income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Income Security

Government programs designed to protect individuals from economic hardships and ensure a minimum level of income.