ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Rent control is an example of a price ceiling, a maximum allowable price. With a price ceiling, the government forbids a price above the maximum. A price ceiling that is set below the equilibrium price creates a shortage that will persist.

Detailed explanation-2: -A price ceiling, such as a rent ceiling, results in a shortage if the ceiling price is less than the equilibrium price. Which of the following is a typical effect of a price ceiling set below the equilibrium price? Less of the good is produced with the ceiling than would be produced without the ceiling.

Detailed explanation-3: -A price ceiling keeps a price from rising above a certain level-the “ceiling”. A price floor keeps a price from falling below a certain level-the “floor”. We can use the demand and supply framework to understand price ceilings. In many markets for goods and services, demanders outnumber suppliers.

Detailed explanation-4: -Rent control places a maximum limit on the rent. It is an example of a price ceiling.

Detailed explanation-5: -Therefore, the correct option is b, price ceilings cause goods to be rationed by some other means than legally determined market prices.