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Chapter 4: Problem 3

In the chapter, you learned that one way the government enforces agricultural price floors is to buy up the excess supply itself. If the government wanted to follow a similar kind of policy to enforce a price ceiling (such as rent control), and thereby prevent black market-type activity, what would it have to do? Is this a sensible solution for enforcing rent control? Briefly, why or why not?

Short Answer

Expert verified
To enforce a rent control similar to the way it carries out agricultural price floors, the government would have to subsidize rents that exceed the established price ceiling. The sensibility of this solution is debatable and would rely on a careful evaluation of factors such as the prospective impact on government resources, market dynamics, housing quality, and fairness to landlords and taxpayers.

Step by step solution

01

Understand Price Ceilings and Price Floors

Firstly, it's important to understand the concept of price ceilings and price floors. A price ceiling is a law that prevents a price from rising above a specific level, while a price floor is a law that prevents a price from falling below a certain level.
02

Apply Agricultural Floor Concept to Rent Ceiling

Since it is known that the government enforces agricultural price floors by buying up the excess supply, applying this method to enforce a price ceiling on rent would imply that the government would need to cover the shortfall created by the ceiling. In other words, the government would have to subsidize rents that go beyond the established ceiling price, especially if the landlords are unwilling or unable to provide properties at the defined price ceiling.
03

Assess Feasibility and Sensibility

Assessing whether or not this is a sensible solution for enforcing rent control involves pondering over several factors. On one hand, this could prevent black market activity, ensure affordability, and control the rental market. However, this approach could have downsides such as a potential strain on government resources, implications for taxpayers, market distortion, the risk of poor maintenance of properties due to decreased rental income, and disincentives for landlords.

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Most popular questions from this chapter

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