A rent ceiling creates a deadweight loss
A) if it is set below the equilibrium rent.
B) if it is set equal to the equilibrium rent.
C) if it set above the equilibrium rent.
D) if it decreases the taxes the government collects in the housing market.
E) never, because if it did create a deadweight loss, the government would not impose it.

Question

Quizplus · Accepted Answer

A rent ceiling set below the equilibrium rent creates a shortage of rental units and a deadweight loss as willing and able tenants cannot find housing and landlords generate less revenue, respectively. This results in an inefficient allocation of resources, which is the definition of a deadweight loss. Rent ceilings set above or equal to the equilibrium rent do not create deadweight losses, but they may reduce the quantity and quality of rental housing supplied in the market. Option D is irrelevant to the question, and Option E is incorrect as governments can impose policies that create deadweight losses.

A Rent Ceiling Creates a Deadweight Loss