Let's break down the question step by step: ### 1. **Efficiency of the Housing Market with Rent Ceiling** A rent ceiling (price ceiling) set below the equilibrium price causes a shortage and leads to inefficiency because: - The quantity supplied is less than the equilibrium quantity. - Not all renters who value the apartment most highly get one. - Deadweight loss occurs. Let's analyze the options: - **A. Efficient because a rent ceiling gives poorer people greater access.** - Not necessarily true; it creates shortages and misallocation. - **B. Inefficient because a black market arises.** - This is often true, but the main reason for inefficiency is not just the black market. - **C. Efficient because the marginal cost of the last apartment rented equals the marginal benefit.** - Not true, because the rent ceiling prevents the market from reaching equilibrium. - **D. Inefficient because the marginal benefit from the last apartment rented exceeds its marginal cost.** - This is correct. With the rent ceiling, quantity supplied is less than equilibrium, so the marginal benefit (demand curve) at the last apartment rented (at the ceiling) is higher than the marginal cost (supply curve). - **E. Inefficient because the marginal cost of the last apartment rented exceeds its marginal benefit.** - This is not true for a price ceiling (more true for a price floor). **Correct Answer:** **D. Inefficient because the marginal benefit from the last apartment rented exceeds its marginal cost.** --- ### 2. **Deadweight Loss Calculation** Deadweight loss (DWL) is the area of the triangle between the demand and supply curves, from the quantity supplied at the rent ceiling to the equilibrium quantity. - **Equilibrium:** - Equilibrium is where D and S intersect: at $900 and 3,000 apartments. - **With rent ceiling ($600):** - At $600, supply = 2,000 apartments, demand = 4,000 apartments. - So, quantity supplied = 2,000 apartments. **DWL Area:** - Base: Difference in quantity = 3,000 - 2,000 = 1,000 apartments (or 1 on the x-axis, since units are in thousands). - Height: Difference in price (vertical distance between D and S at Q = 2,000) - At Q = 2 (2,000 apartments): - Demand price: from demand curve, at Q=2, P=1,200. - Supply price: from supply curve, at Q=2, P=600. - Height = 1,200 - 600 = $600. - **Area of triangle:** \[\text{DWL} = \frac{1}{2} \times \text{base} \times \text{height}\] \[= \frac{1}{2} \times 1,000 \times 600\] \[= 500 \times 600 = 300,000\] **Final DWL:** **$300,000** --- ### 3. **Fairness** With the rent ceiling: - The market is not fair by the fair results view (not everyone who needs an apartment gets one). - The market is not fair by the fair rules view (not voluntary exchange; some willing renters/suppliers are excluded). **Correct answer:** **B. False** --- ## **Summary of Answers:** 1. **With the rent ceiling, the housing market is:** **D. inefficient because the marginal benefit from the last apartment rented exceeds its marginal cost.** 2. **Deadweight loss is:** **$300,000** 3. **With the rent ceiling, the housing market is fair by both views:** **B. False**