Question
5. The effect of price ceilings on demand curvesThe graph below represents the market for two-bedroom apartments in London, in the absence of price controls.Now
5. The effect of price ceilings on demand curvesThe graph below represents the market for two-bedroom apartments in London, in the absence of price controls.Now suppose the city imposes a maximum monthly rental price of $1,600 per unit. If the government does not implement any additional policies to resolve the resulting disequilibrium, the cost to those ___________ [demanding/supplying -fill blank] apartments will rise until equilibrium is restored.On the following graph, use the black line (plus symbol) to draw the line illustrating this shift in either the supply or demand curve (assuming the shift is parallel). Then use the green triangle (triangle symbols) to shade the area representing the gains to renters?that is, consumer surplus?and the purple triangle (diamond symbols) to shade the area representing the gains to landlords?that is, producer surplus?at the maximum rental price. Finally, use the black triangle (plus symbols) to determine the minimum amount of deadweight loss (DWL) generated by the maximum monthly rent.Note: You will not be graded on your placement of the objects on the graph. Once you have placed the shapes properly on the graph, select them to see the areas, and use this information to complete the table following the graph.
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