In many cities that have rent controls, such as New York and San Francisco, the actual rents paid can be much higher than the legal maximum. Because rent controls cause a shortage of apartments, desperate tenants are often willing to pay landlords rents that are higher than the law allows, perhaps by writing a check for the legally allowed rent and paying an additional amount in cash. Look again at Figure 4.9. Suppose that competition among tenants results in the black market rent rising to $3,500 per month. At this rent, tenants demand 1,900,000 apartments. Draw a graph showing the market for apartments in this situation and compare your graph with the one shown in Figure 4.9. Be sure to note any differences in consumer surplus, producer surplus, and deadweight loss.

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Rent (dollars per month) $2,500 1,500 0 L A Producer surplus transferred from landlords to renters B C 1,900,000 Deadweight loss = B + C Shortage of apartments 2,000,000 S Rent control price ceiling 2,100,000 D Quantity (apartments per month)