A rent ceiling
A)results in a shortage of housing if the rent ceiling is below the equilibrium rent.
B)results in a surplus of housing if the rent ceiling is above the equilibrium rent.
C)always results in a shortage of housing.
D)always results in a surplus of housing.
E)Both A and B are correct.

Question

Quizplus · Accepted Answer

A rent ceiling sets a maximum price that landlords can legally charge for rent. If this rent ceiling is set below the equilibrium rent (the market-clearing price where the quantity of housing supplied equals the quantity of housing demanded), landlords will not be willing to supply as much housing as before, because they cannot earn as much revenue to cover their costs. Meanwhile, tenants will be willing to demand more housing at the lower price, resulting in excess demand or a shortage of housing. Therefore, choice A is correct. Choice B is incorrect because a rent ceiling above the equilibrium rent would have no effect on the quantity of housing supplied or demanded, since it is a ceiling that nobody would hit. Choice C is also incorrect, as some rent ceilings could be above the equilibrium rent and have no effect on the market. Choice D is also incorrect, as rent ceilings generally tend to create shortages, rather than surpluses. Finally, choice E is partially correct but too general, since it does not exclude options that are not correct (e.g. B, C, or D).

A Rent Ceiling