A small college town has rent control for all rental housing. Critics of rent control persuade the town council to gradually raise the maximum rent, increasing it a little each year. After 10 years, all rents will be de-controlled and set by the market.

Part a) Using a supply and demand diagram, illustrate the effect of raising the maximum rent level under rent control in the first year, after just the first increase. Using a welfare table and in words, explain who benefits and who loses and why. Be sure to state what happens to equilibrium price and quantity.

Part b) How will the stock of rental housing be affected in the decades after rent control has been lifted? Explain why.