In a market with a rent ceiling set below the equilibrium rent,the producer and consumer surplus
A) both increase.
B) both decrease, but generally not to zero.
C) do not change.
D) are eliminated.
E) are both totally converted into deadweight loss.

Question

Quizplus · Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a shortage of rental units, as the quantity supplied is less than the quantity demanded. As a result, the producer surplus decreases, as landlords are unable to charge the equilibrium price and receive less revenue, and the consumer surplus also decreases as some renters are unable to find a suitable apartment or are forced to pay more to get one. However, the producer and consumer surplus do not generally decrease to zero as some rental units are still available in the market. The decrease in producer and consumer surplus leads to deadweight loss due to inefficiencies caused by the artificially imposed rent ceiling.

In a Market with a Rent Ceiling Set Below the Equilibrium