Question

Use the table to answer the question.

Apartment Supply and Demand Schedules
Price ($) Quantity Demanded (thousands) Quantity Supplied
(thousands)
1,000 600 300
1,500 500 500
2,000 400 700
2,500 300 900
The table gives the supply and demand schedules in a market for apartments. A government price control is implemented that results in a shortage of 300,000 apartments. Which price control must have been used?


a price floor of $2,000


a price ceiling of $2,000


a price floor of $1,000


a price ceiling of $1,000

Answer 1

A price ceiling of $1,000.

At $1,000 quantity demanded = 600,000 and quantity supplied = 300,000, so shortage = 600,000 − 300,000 = 300,000. A binding price ceiling below the equilibrium ($1,500) causes this.