A rent ceiling The graph below shows a market for rental housing. Suppose the city government...
A rent ceiling
The graph below shows a market for rental housing. Suppose the city government implements a rent ceiling at $600 per month.
In the scenario above, if in addition to the explicit legal price tenants pay the full potential implicit opportunity costs of time and trouble associated with the rent ceiling, their loss resulting from the rent control is $_____ million?
In the scenario above, if tenants pay the full economic price of an apartment, what is the deadweight loss resulting from the rent ceiling ($ million)?
Homework Answers
If the rent ceiling is set at the price of 600 then the demand in the market will be 30 and the supply will be just 6. There will be a shortage of 24 units in the market. The amount of apartments traded will be 6 only,
The opportunity cost lost will be (1400 - 600) x 6 = $4800 in million.. (the area of rectangle below the dead weight loss triange. )
The deadweight loss will be 1/2 (1400 - 600) x (24 - 6) = $7200 in million. (it will be triangle between the equilibrium good traded before the ceiling and the goods traded now. )
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A rent ceiling
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