Question

144. Refer to the above diagram. Rent controls are best illustrated by:

A. price A.
B. quantity E.
C. price C.
D. price B.

Answer 1

Rent controls are best illustrated by price A. In a rent control situation, the price of rent is fixed by a law, resulting in a shortage of rental housing.

Step-by-step explanation:

Rent controls are best illustrated by price A.

In the given diagram, a rent control law has been implemented to keep the price of rent at a specific level. This is shown by the horizontal line at the price of $500, which is the maximum price set by the rent control law. The quantity demanded at this price exceeds the quantity supplied, resulting in a shortage of rental housing.

Despite the intention to help renters, the price ceiling actually leads to fewer apartments being rented out compared to the market rent.