ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Houses are broken up into apartments to meet the demand.
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Construction jobs increase with the building of new apartment buildings.
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People can find apartments but cannot afford to rent them.
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More people want to rent apartments than the number of apartments available to rent.
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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: -The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases. It causes a quantity shortage of the amount Qd – Qs. In addition, a deadweight loss is created from the price ceiling.
Detailed explanation-3: -Why? If consumers stick to the price ceiling, the market price will be below equilibrium, implying that quantity demanded will be greater than quantity supplied. Because buyers can only buy what is on the market, the number of transactions will be limited to quantity supplied. Graphically, this is easy to see.
Detailed explanation-4: -Price ceilings create five important effects: shortages, reductions in product quality, wasteful lineups, a loss from gains to trade, and a misallocation of resources.