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A city imposes a price ceiling on rental apartments. What effect does this price control have on the underlying demand curve and supply curve for apartments?
AIt shifts both the demand curve and the supply curve left
BIt shifts the demand curve right and the supply curve left
CIt does not shift either curve; it only limits price and quantity
DIt shifts both the demand curve and the supply curve right
Answer & Solution
Correct answer: C. It does not shift either curve; it only limits price and quantity
1. A price ceiling is a legal cap on price, not a change in income, tastes, or production costs.
2. Since none of the underlying determinants of demand or supply change, neither curve shifts.
3. What the ceiling does is prevent price from rising to the level where quantity demanded and quantity supplied would otherwise meet.
4. Buyers and sellers are still constrained to points along their original curves, just at a price the market would not have chosen.
_Source: OpenStax Principles of Macroeconomics for AP Courses (CC BY 4.0), Ch 3 "Demand and Supply", section 3.4 | Price Ceilings and Price Floors_
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