Assuming that the rent ceiling is strictly enforced so that there is no black market,which of the following statements about a housing market with a rent ceiling set below the equilibrium rent is correct?
A) The rent for housing equals the ceiling rent or higher.
B) There is excess supply of housing.
C) The rent ceiling increases the amount of producers' surplus.
D) The rent ceiling creates a deadweight loss.
E) The rent ceiling enforces efficiency upon the housing market.

Question

Quizplus · Accepted Answer

When a rent ceiling is set below the equilibrium rent, it creates a situation where the quantity demanded for housing exceeds the quantity supplied. This leads to a shortage of rental housing, and landlords are forced to ration the available housing units among potential renters in some way. This may be through the use of long waiting lists or other non-price methods. At the same time, the artificially low rent ceiling makes it unprofitable for landlords to supply as much housing as the market demands. This creates a deadweight loss, as potential renters who value the housing more than the landlords' cost of supplying it are unable to find rental housing units. As a result, the rent ceiling reduces the overall efficiency of the housing market.

Assuming That the Rent Ceiling Is Strictly Enforced So That