Question

The government decides to limit the rent that can be requested for housing in a particular neighborhood. Which of the following is wrong? If the limit is binding, it can be assumed Choose one: a. that there is a shortage of housing. b. that in the long term there will be apartments rented in the neighborhood. c. that in the short term the supply of housing changes little. d. that the supply elasticity of supply is more short-term than long- term e. that in the long term the number of residents in the neighborhood who want to rent there increases.

Answer 1

The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.

It means if price ceiling is not binding, then its effect will be ineffective.

If the limit is binding, then price ceiling will be below the equilibrium price. So there will be shortage of demand.

In short-run supply of houses for rent cannot be change due to change in the rent, so supply of houses in short-run is inelastic and in the long-run it will be elastic.

Hence option d is the correct answer because it is not correct about the elasticity of supply.

Hence option d is the correct answer.