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.
Answers
Answer:
Demand for goods and services outnumbers supply in many markets. Consumers will sometimes band together behind a political proposal to keep a certain price low. In some cities, such as Albany, there is a price ceiling that states that rents can only be raised by a certain percentage each year.
a)Increasing the price above the equilibrium price has no effect on the market.
A greater quantity of the commodity, say OK, will be demanded at a higher price. Suppliers, on the other hand, would be waiting in the wings to supply more than the current demand. The price will have a tendency to fall below the equilibrium level. If the ceiling price equals the equilibrium price, OP, the market will be unaffected.
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