Free Demand, Supply and Elasticity Quiz: Equilibrium, Price Controls, Shifts and Tax Incidence

Demand, Supply, Price Determination, and Elasticity

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In a city rental market, monthly demand and supply for apartments are \[ Q_d=120-4P \qquad\text{and}\qquad Q_s=-30+6P, \] where \(P\) is the monthly rent in hundreds of dollars and \(Q\) is thousands of apartments. The city council then imposes a legal maximum rent (price ceiling) of \(P=10\), as shown below.

What is the effect of the price ceiling on the market?

Select one option.

A shortage of 20 thousand apartments
A shortage of 30 thousand apartments
A shortage of 50 thousand apartments
A surplus of 50 thousand apartments
No shortage or surplus, because a ceiling only affects a market when it is set above the equilibrium price

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