Figure 4-5

Figure 4-5 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R₀.
-Refer to Figure 4-5. With rent control,the quantity supplied is Q₁. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get?

Question

Figure 4-5
  
Figure 4-5 shows the market for apartments in Bay City. Recently, the government imposed a rent ceiling at R₀.
-Refer to Figure 4-5. With rent control,the quantity supplied is Q₁. Suppose apartment owners ignore the law and rent this quantity for the highest rent they can get. What is the highest rent they can get?

Quizplus · Accepted Answer

At rent control level R₀, the quantity supplied is restricted to Q₁, which is below the equilibrium quantity Q*. This creates excess demand, which means that apartment owners can charge a higher rent than R₀ if they ignore the law and rent Q₁. The highest rent they can charge is the equilibrium rent R₁, which corresponds to the intersection of the quantity demanded and quantity supplied at Q₁. Therefore, the correct answer is choice B, R₁.

Figure 4-5 Figure 4-5 Shows the Market for Apartments in Bay City