Chapter 2R, Problem 20MCQ

To determine

The question requires us to determine the result of the price ceiling set by the government at $600.

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 the price ceiling at $600 which is above the equilibrium price. When the government sets the price ceiling above the equilibrium price, it will not have any effect on the demand and supply of rental apartments.

Since equilibrium rent is $500 per month, it means consumers are willing to buy the apartments on rent at $500 per month and sellers are ready to give their apartments on rent at $500. If the government sets the price above it, the ceiling won’t be binding, and thus it will have no effect.

Therefore, there will be no shortage or surplus when a government sets a price ceiling above the equilibrium price because both the buyers and the sellers are happy at the equilibrium rent.

The option “c” 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.