6.3 Controlling Prices-Maximum and Minimum Prices

Figure 6.6
-Refer to Figure 6.6.If the government will not allow landlords to charge more than $400 for an apartment,which of the following will happen?

Question

6.3 Controlling Prices-Maximum and Minimum Prices
  
Figure 6.6
-Refer to Figure 6.6.If the government will not allow landlords to charge more than $400 for an apartment,which of the following will happen?

Quizplus · Accepted Answer

If the government sets a maximum price of $400 for apartments, it creates a situation where the price is below the equilibrium price (where supply and demand intersect). This means that demand will be higher than supply, resulting in excess demand (also known as a housing shortage). Landlords may respond to this by reducing the quality or quantity of apartments available or by creating waiting lists to find tenants willing to pay the market price. Therefore, the government intervention in setting a maximum price creates a market distortion and results in a housing shortage.