Suppose the government establishes a ceiling on the price of rental accommodation that is lower than the free-market equilibrium price.In this case,
A)construction of new rental units will be encouraged.
B)the rental housing market will be unaffected.
C)those people who obtain rental units at the ceiling price will benefit.
D)a surplus of current rental units will develop.
E)the current stock of rental housing will be better maintained as there is a shortage of housing.

Question

Quizplus · Accepted Answer

The establishment of a ceiling on the price of rental accommodation that is lower than the free-market equilibrium price will benefit those people who obtain rental units at the ceiling price. This is because they are able to get rental units at a lower price than they would have in the absence of the ceiling. However, this may discourage the construction of new rental units as the profitability of such ventures may be affected. The rental housing market may also suffer as supply may be insufficient to satisfy demand, so a surplus of current rental units may not develop. Finally, it is not guaranteed that the current stock of rental housing will be better maintained as landlords may not have enough funds to invest in maintenance.

Suppose the Government Establishes a Ceiling on the Price of Rental