When a rent ceiling below the equilibrium rent is put in place, the outcome is
A) inefficient because marginal benefit equals marginal cost.
B) inefficient because marginal benefit is greater than marginal cost.
C) inefficient because marginal benefit is less than marginal cost.
D) efficient because marginal benefit is greater than marginal cost.
E) efficient because marginal benefit equals marginal cost.

Question

Quizplus · Accepted Answer

A rent ceiling set below the equilibrium rent creates a shortage, as the quantity demanded exceeds the quantity supplied at that price. This leads to inefficiency because the marginal benefit of renting to potential renters (who value the housing more than it costs to provide) is greater than the marginal cost to landlords. This mismatch means that not all mutually beneficial transactions are occurring, leading to a loss of economic welfare.

When a Rent Ceiling Below the Equilibrium Rent Is Put