Chapter 2R, Problem 19MCQ

To determine

The question requires us to determine the result of the price ceiling set by the government at $400.

Explanation of Solution

At the equilibrium price, the quantity demanded equals the quantity supplied means there is no shortage or surplus of the product at this point. In the given graph, the intersection point of the demand and supply curve represents the equilibrium point in the market where:

Equilibrium rent = $500 per month

The equilibrium quantity of apartments = 200,000 units of apartments

The government sets a price ceiling of $400. At the price ceiling, consumers are willing to purchase 220,000 units of apartments while the producers are willing to sell 180,000 units of apartments. 

At a price ceiling of $400 rent per month,

Quantity demanded = 220,000 units

Quantity supplied = 180,000 units

Since the quantity demanded is higher than the quantity supplied, the market will face a shortage of apartments.

Shortage = Quantity demanded − Quantity supplied = 220,000 − 180,000 = 40,000.

Thus, when the government sets a price ceiling at $400, the market will face a shortage of 40,000 units of apartments.

Option “d” is correct

Economics Concept Introduction

The price ceiling is the price set by the government to regulate the market. It is the maximum price a seller can charge for the goods and services. Generally, the price ceiling lies below the market equilibrium price.