Question

Under the rent controlled measures implemented by the government there was PRICE CEILING introduced in Oman. The tenants and landlords behave differently towards the low rental values for the buildings influencing the demand and supply side of houses in the long run market conditions.
Answer the questions:
Q1. Describe in your own words, the expected behavior of TENANTS in the long run.    [4x1=4 Marks]
Q2. Analyse the behavior of LANDLORDS while the low rents are observed in the market. [4x1=4 Marks]                                                                                  
Q3. Do you think there would be SHORTAGE OR SURPLUS in long run and suggest your opinion to handle such a kind of situation?     [2x1=2 Marks]

Answer 1

Sol :

Price Ceiling is the policy of the government where maximum price for th goods or services is stated by the government.

1) As, Price ceiling imposed the prices which is genraaly below the Equilibrium Price as, if price ceiling price is above the Price of equilibrium then it has no effect on the Market.

So, due to decreases in prices of the rent , it will encourges the people to have the apartment rented and more people will start moving to the cities. therefore , in the long run tenants will will increase the demand for the apartments

2)

As, Price ceiling imposed the prices which is genraaly below the Equilibrium Price as, if price ceiling price is above the Price of equilibrium then it has no effect on the Market.

So, due to decreases in prices of the rent , it will disatisfies the Landlords and in respond of decreases in prices , landlords will not increase the supply or build the new apartments over the time. Ss, it will reduce the supply fo rthe apartments in the long run.

3) In long run , there will be a large Shortages , becuase of increasing in demand and decreasing in supply.

In order to handle the situation which will might create due to shortage is imposing of regulations. (i.e landlords have to provide necessities living condition)