Question

Imagine that a city council decides that the market price for student rental apartments is too high. It passes a law that establishes a rental price Ceiling of $600 per month. The result of the price Ceiling is a shortage. Which of the following has caused the shortage of apartments?

Answer 1

The shortage of apartments is caused by the rental price ceiling set by the city council.

Step-by-step explanation:

The shortage of apartments is caused by the rental price ceiling set by the city council. A price ceiling is a government-imposed limit on how high a price can be charged for a product or service. In this case, the price ceiling is set at $600 per month. However, the quantity demanded of rental apartments at this price exceeds the quantity supplied, resulting in a shortage of apartments.

Rent control laws, such as price ceilings, are intended to help renters by keeping rental prices affordable. However, one of the consequences of price ceilings is that they often lead to shortages because the price is set below the equilibrium market price, discouraging suppliers from providing the quantity demanded at that price.

Therefore, the shortage of apartments is caused by the price ceiling set by the city council.