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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 3DQ
Textbook Problem
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Discuss the likely effects of the following:

  1. Rent ceilings on the market for apartments
  2. A price floor in the market for wheat

Use supply-demand diagrams to show what may happen in each case.

To determine

(a)

The effects of rent ceilings on the market for apartments.

Explanation of Solution

Rent ceiling means fixing the upper limit on the rent rates. No seller can charge the rate more than that fixed amount.

It is fixed below the equilibrium rent rate for it to be binding (otherwise it will have no effect on market equilibrium).

Rent ceiling in the market will discourage the sellers to rent their apartments because of lower rent rates than the market equilibrium rate and the buyers will be benefitted in this case.

The following figure shows the effects of a rent ceiling:

To determine

(b)

The effects of the price floor in the market for wheat.

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