Basic Econ

A House Market With Price Ceiling


What is price ceiling?

A price ceiling or price cap is a regulation that makes it illegal to charge a price higher than a specified level.

When a price ceiling is applied to a housing market it is called a rent ceiling.

House Ceiling

At the rent ceiling, the quantity of housing demanded exceeds the quantity supplied.

There is a shortage of housing.

Which of the following effects is typical of a price ceiling set below the equilibrium price?

  • A) Less of the good is produced with the ceiling than would be produced without the ceiling.
  • B) The price ceiling has no effect on the market equilibrium.
  • C) Consumers can buy more than what they can at the equilibrium price because the ceiling price is lower.
  • D) None of the above options is correct.

Outcome With Rent Ceiling

A rent ceiling decreases the quantity of housing supplied to less than the efficient quantity.

A deadweight loss arises.

Producer surplus shrinks.

Consumer surplus shrinks.

There is a potential loss from increased search activity.

With rent controls, what mechanism might arise to bring about an equilibrium?

  • A) decreased search costs
  • B) black market activity
  • D) more favorable leases offered to tenants
  • C) increased advertising by landlords

Is rent ceiling good or not?

What's the effect of rent control?