Chapter 2R, Problem 16MCQ

To determine

The question requires us to determine the level of effective price ceilings in the market.

Explanation of Solution

The price ceiling is the price set by the government to regulate the market. It is the maximum price a seller can charge for the goods and services. Generally, the price ceiling lies below the market equilibrium price.

At the equilibrium price, Quantity demanded equals the quantity supplied means there is no shortage or surplus of the product at this point. In the given graph, the intersection point of the demand and supply curve represents the equilibrium point in the market where:

Equilibrium rent = $500 per month

The equilibrium quantity of apartments = 200 thousand units of apartments

The effective price ceiling in the market must be below the equilibrium level of rent.

Thus, the effective price ceiling rent in the market must be below $500 per month.

Therefore, Option “e” is correct.

Economics Concept Introduction