Suppose that the demand for apartments is given by P equals 30 minus Q , and the
ID: 1173820 • Letter: S
Question
Suppose that the demand for apartments is given by P equals 30 minus Q , and the supply of apartments is given by P equals 2 Q . Suppose the government decides to impose a maximum rent of P equals 16. Which of the following statements best describes the outcome of such a rent?
The rent is a price ceiling, and there is a housing surplus of 16.
The rent is a price floor, and there is a housing shortage of 16.
The rent is a price floor, and there is a housing shortage of 24.
The rent is a price ceiling, and there is a housing shortage of 16
The rent is a price ceiling, and there is a housing surplus of 16.
The rent is a price floor, and there is a housing shortage of 16.
The rent is a price floor, and there is a housing shortage of 24.
The rent is a price ceiling, and there is a housing shortage of 16
Explanation / Answer
Correct Answer:
D.
Working note:
At equilibrium, demand = supply
30-Q = 2Q
Q = 10
Price = 30-10 = $20
Since the $16 price is lower than the equilibrium price of $20, then it is a price ceiling.
At lower price than the equilibrium price, there will shortage in the market.
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