ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A government sets a maximum price for rental housing below the free-market equilibrium rent. Which outcome is most likely?
Excess demand, or a shortage, is most likely. With rent capped below equilibrium, more people want housing while landlords supply less. Quantity demanded rises and quantity supplied falls, so the market does not clear, unlike a minimum price which causes a surplus.
- AA surplus of housing because landlords supply more
- BExcess demand, with quantity supplied falling and quantity demanded rising relative to equilibriumCorrect
- CEquilibrium is maintained because the price ceiling is binding
- DDemand falls until the market clears at the maximum price
Explanation
A binding ceiling below equilibrium lowers the price, so quantity demanded extends while quantity supplied contracts. The result is a shortage (excess demand), possibly with rationing or black markets. Surplus would arise from a minimum price above equilibrium.
Did you get it right without looking?
One question tells you little. A timed set on Microeconomic factors shows your real accuracy, how long you take and where you lose marks.
More Microeconomic factors questions
- A government introduces a minimum price for a good above the free-market equilibrium price and buys any unsold surplus to keep the price at …
- A government introduces a tax on each tonne of carbon emitted by manufacturers, set equal to the estimated external cost of the emissions. W…
- Which of the following is most likely to be a reason why small firms survive alongside large firms in an industry?
- A car manufacturer doubles its output and finds that its average cost per car falls because it can now negotiate lower prices by ordering co…
- Which of the following is an external economy of scale for a firm?
- Which of the following is most likely to make the supply of a product more price elastic in the short run?