Question

4) If the rental market for a two bed room apartment in Edison has a equilibrium price $3000 and the equilibrium quantity 200units and Phil Murphy passes a law that mandates property owners to rent out their 2 bedroom apartments for $2500, explain what type of policy Murphy implemented impact this will have on the market. (i.e price floor or price ceiling) Hint Draw the graph and explain in detail this markets the rental market will have

Answer 1

When a price ceiling of 2500 is imposed there will be a shortage of (Qs-Qd) units in the market

The black shaded area is deadweight loss

Before price ceiling, 200 units of rental housing were available. After the price ceiling, the landlords will supply lesser quantity and quality of housing. whereas the quantity demanded by the renter's increases. This would lead to a shortage of available rental units in the market and leads to market failure

Consumer surplus and producer surplus decreases by the area equal to the shaded region in the graph also known as dead weight loss