Suppose the city council in a large city decides to pass a law which forces landlords to charge a maximum rent of $750/month for a one-bedroom apartment. prior to the rent control, the average rent for a one-bedroom apartment was $1,750/month. which of the following is likely to occur as a result of the price ceiling?
a) landlords will begin decreasing the quality of one bedroom appartments by not making repair or paying for upkeep
b) the rental market will become more efficient
c)some landlords and renters will agree on a price less than $750 a month and not report it to government
d)landlords will supply more appartments to the market than before the price silling

answer; /// blank(1); increases; blank(2); decreases;

the answer is "b.the increased supply will create a surplus. "

the essential thought behind price controls is straightforward - utilize the power of law to modify the equilibrium of a market. for instance, the legislature may choose that the steel business needs to survive, and in this way pass a law to set a value floor on steel. this implies all steel sold must offer at or over the floor value, which must be set over the equilibrium cost for it to have any impact. the switch could likewise happen - the administration can choose that steel is excessively costly and set a value roof underneath its equilibrium value, with the goal that all steel must be sold at or beneath that ceiling.