A housing charity finds that tenants cannot easily discover whether a rented flat has poor insulation until after winter. Landlords know the heating costs, ...
Question 1 Report
A housing charity finds that tenants cannot easily discover whether a rented flat has poor insulation until after winter. Landlords know the heating costs, and some advertise only the low monthly rent.
(a) State which side of this market has more information. [1]
(b) Explain one effect this information failure may have on the market for rented flats. [2]
(c) Use one policy to show how the government could improve information for tenants. [1]
Answer Details
(a) Landlords, the sellers in this market, have more information [1]. They know the likely heating costs and insulation quality before the flat is rented.
(b) Tenants may rent poorly insulated flats because they cannot identify the quality before renting [1]. As a result, efficient, well-insulated flats may be under-demanded, or landlords may have less incentive to improve insulation [1]. The market does not reward quality properly when tenants cannot distinguish it in advance.
(c) The government could require an energy-efficiency rating or certificate to be displayed in advertisements [1]. This supplies comparable information before tenants decide.
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