Question

A rent ceiling prohibits charging rent that exceeds the ceiling amount. Suppose
government decides to put a rent ceiling.
(a) With the help of a diagram show the effect of a rent ceiling on the supply and demand
of a rented house if the ceiling is set below the market equilibrium rent.
(b) What will be the resultant effects on supply and demand of a rented house if the
ceiling is set above the market equilibrium rent?

Answer 1

Answer:

In many markets for goods and services, demanders outnumber suppliers. Consumers, who are also potential voters, sometimes unite behind a political proposal to hold down a certain price. In some cities, such as Albany, renters have pressed political leaders to pass rent control laws, a price ceiling that usually works by stating that rents can be raised by only a certain maximum percentage each year.

Answer 2

(a)celling price more than the equilibrium price will have no effect on the market .At a higher price say OK ,OT quantity of the commodity will be demanded. The suppliers, on the other hand would be waiting in their wings to supply more than the quantity being presently demanded.there will be tendency for the price to fall down the equilibrium level .if the ceiling price equals the equilibrium price ,OP,it will leave the market unaffected