CFA Practice Question

CFA Practice Question

Which of the following will most likely result from imposing rent controls in a given area?
A. an increase in new apartments constructed in the area
B. a decrease in the vacancy rate for apartments in the area
C. an increase in the vacancy rate for apartments in the area
Explanation: Rent control will imply that new housing will decline. Thus, a shortage of housing will develop. AS a result, individuals will be willing to live in places that in other circumstances would be unacceptable. Retail space or warehouses may be converted in to living spaces. Thus, the vacancy rate will decline in the area.

User Contributed Comments 7

User Comment
KD101 Price has a ceilling - so supply will decline and demand will increase - as a result just about everything will be rented
ohmms That is quantity supplied and quantity demanded.
danlan Decrease in vacancy rate: shortage of housing!
jackwez I would live in a warehouse regardless of whether or not there is a rent cieling....
Andy552 This is a stupid question, it depends whether the price ceiling is put above or below the eqiulibrium price.

If the equilibrium price is £100 per week
Ceiling = £150
Supply increases as can attract a higher price and has more stability in income. Vacancy rate rises for those who can't afford housing.

Ceiling = £50.
Supply falls significantly for anyone wanting to charge > £50. Vacancy rates fall.
Andy552 OK. When there is a price ceiling, you should assume that the equilibrim price is above the ceiling price. Otherwise why would there be a price ceiling? It would be useless and have no impact at all.
GBolt93 If it's below the equilibrium price its a price floor not a ceiling. E.g. minimum wage
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