In many cities, there is a debate on the rationale and the consequences of the rent control policy.

Suppose that you have the following information:

The (rental) demand function for a particular type of housing in NYC is given by

D(p) = 200000 - 5p

The supply of housing is perfectly inelastic in the short run to Ssr(p) = 175,000 while in the long-run is given by the supply function Slr(p) = 35p

(a) Can you find a reason why in the long run the supply function of apartments might be more elastic than in

the short run? Explain

(b) Find the equilibrium price and quantity in the short run.

(c) Find the equilibrium price and quantity in the long run.

(d) Now assume that a price ceiling (rent control) equal to $2, 000 is imposed for all these type of apartments in NYC. This means that nobody can rent this type of housing at a rental price higher than $2, 000. Describe carefully the equilibrium that this policy induces. In particular, what is the price at which each unit is rented, what is the quantity of units rented and who rents them? (Note that there might be several valid answers.)

(e) Calculate the change in the consumer surplus the change in producer surplus and the deadweight loss produced by the rent control policy in the short run. (You might need to make some assumptions about who rents the units)

(f) Calculate the change in the consumer surplus the change in producer surplus and the deadweight loss produced by the rent control policy in the long run. (You might need to make some assumptions about who rents the units)

(g) If you dislike the policy and you want to show that the deadweight loss is very large, which model do you pick, short run or long run? Explain.