12. 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 are therefore 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.

a. Use a diagram to show the effect on the rental market of the elimination of rent control. What will happen to the quality and quantity of rental housing supplied?

b. Now use a second diagram to show the additional effect of the income-supplement policy on the market, namely the resulting increase in demand. What effect does it have on the market rent and quantity of rental housing supplied in comparison to your answers to part a?

c. Are tenants better or worse off as a result of these policies? Are landlords better or worse off?

d. From a political standpoint, why do you think cities have been more likely to resort to rent control rather than a policy of income supplements to help low-income people pay for housing?