Price floors and ceilings are meant to help correct a market failures. The issue becomes when the price floors and ceilings themselves becoming the market failure. Rent control is meant to prevent landlords from taking advantage of tennets with extreme prices. The issue is it creates the situation in the below graph. When the below scenario is occuring, which point is market equilibrium and which point is demand at the price of $800? Monthly Rent Per Unit (dollars) OB and E OB and A OE and A OE and B 1,600 1,200 800 400 Rent ceiling 0 Rent ceiling B —— 2 4 C E Shortage of 4 million rental units Quantity demanded 6 CAUSATION CHAIN S = MC 8 10 Quantity of Rental Units (millions per month) exceeds quantity supplied A D=MB Persistent shortage

Price floors and ceilings are meant to help correct a market failures. The issue becomes when the price floors and ceilings themselves becoming the market failure. Rent control is meant to prevent landlords from taking advantage of tennets with extreme prices. The issue is it creates the situation in the below graph. When the below scenario is occuring, which point is market equilibrium and which point is demand at the price of $800? Monthly Rent Per Unit (dollars) OB and E OB and A OE and A OE and B 1,600 1,200 800 400 Rent ceiling 0 Rent ceiling B —— 2 4 C E Shortage of 4 million rental units Quantity demanded 6 CAUSATION CHAIN S = MC 8 10 Quantity of Rental Units (millions per month) exceeds quantity supplied A D=MB Persistent shortage

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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