A binding price ceiling on apartments (effective rent control) will:

• A. increase the equilibrium rent for apartments
• B. lead to a surplus of apartments as quantity supplied exceeds quantity demanded
• C. create a shortage of apartments as quantity demanded exceeds quantity supplied
• D. have no effect on the apartment market if set above the equilibrium price

Answer: (C)

Verified step by step guidance

1. Understand what a price ceiling is: it is a legal maximum price set below the equilibrium price to make goods more affordable.
2. Recognize that a binding price ceiling means the ceiling is set below the market equilibrium price, so it actively restricts the price from rising to equilibrium.
3. Analyze the effects of a binding price ceiling on the apartment market: since the price is kept artificially low, the quantity demanded will increase because apartments are cheaper.
4. At the same time, the quantity supplied will decrease because landlords may be less willing to rent out apartments at the lower price, reducing supply.
5. Conclude that this mismatch between higher quantity demanded and lower quantity supplied results in a shortage of apartments.