A mayor wants to help renters in her city. She considers two policies that will benefit renters equally.

One policy is a rent control, which places a price ceiling, p, on rents. The other is a government housing subsidy of s dollars per month that lowers the amount renters pay (to p). Who benefits and who loses from these policies? Compare the effects of the two policies on the quantity of housing consumed, consumer surplus, producer surplus, government expenditure, and deadweight loss. Does the comparison of deadweight loss depend on the elasticities of supply and demand? (Hint: Consider extreme cases and see Solved Problem 9.3.) If so, how?

6. Comparing Both Types of Policies: Trade