The figure illustrates the rental housing market, where there is an outward shift in the demand curve. In response, the city authority imposes a rent ceiling of €500. Which of the... The figure illustrates the rental housing market, where there is an outward shift in the demand curve. In response, the city authority imposes a rent ceiling of €500. Which of the following statements is correct?
Understand the Problem
The question describes a scenario in the rental housing market where the demand curve has shifted outward, and the city authority has imposed a rent ceiling. The goal is to determine which of the provided statements about this scenario is correct.
Answer
In the long run, building more houses would remove the need for the rent ceiling.
In the long run, building more houses would remove the need for the rent ceiling.
Answer for screen readers
In the long run, building more houses would remove the need for the rent ceiling.
More Information
With a rent ceiling set below the equilibrium rent, the quantity of housing supplied is less than in a free market. Building more houses increases the supply, potentially eliminating the need for a rent ceiling by bringing the market closer to equilibrium.
Tips
A common mistake is to confuse demand with the number of tenancies at a particular price. The demand curve shows the quantity of houses demanded at each price.
Sources
- 8.13 Price controls – Microeconomics - CORE Econ - core-econ.org
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