When is price ceiling used

Price controls come in two flavors. This section uses the demand and supply framework to analyze price ceilings. The next section discusses price floors. In many markets for goods and services, demanders outnumber suppliers.

Consumers, who are also potential voters, sometimes unite behind a political proposal to hold down a certain price. In some cities, for example, renters have pressed political leaders to pass rent control laws, a price ceiling that usually works by stating that rents can be raised by only a certain maximum percentage each year.

Rent control becomes a politically hot topic when rents begin to rise rapidly. Everyone needs an affordable place to live. Perhaps a change in tastes makes a certain suburb or town a more popular place to live. Perhaps locally-based businesses expand, bringing higher incomes and more people into the area.

Changes of this sort can cause a change in the demand for rental housing, as Figure 3. The effect of greater income or a change in tastes is to shift the demand curve for rental housing to the right, as shown by the data in Table 3. Figure 3. If demand shifts from D 0 to D 1 , the new equilibrium would be at E 1 —unless a price ceiling prevents the price from rising.

Lesson Overview: Taxation and Deadweight Loss. Practice: Tax Incidence and Deadweight Loss. Next lesson. How does quantity demanded react to artificial constraints on price? Google Classroom Facebook Twitter. Sort by: Top Voted. Price and quantity controls. PhD Candidate. Mid-Level Industry Position. Junior Industry Position. Other Jobs. All Jobs.

Summer Schools. Online Courses. Professional Training. Supplementary Courses. All Courses. PhD Programs. Master's Programs. MBA Programs. Bachelor's Programs. All Programs. Remote Jobs. Online Programs. Online Conferences. All Online. Postgraduate Scholarships. Undergraduate Scholarships. Financial Aid. Other Funding. All Scholarships. All Conferences. Economics Terms A-Z.

Career Advice.