Price Ceiling and Rent Control

It is a cardinal truth that, often in an economy, the outcomes of the unregulated market act against the public interests. In such a situation, people often seek the help of law and, resultantly, the government authorities intervenes in the process and control or fix the prices in the market. By imposing a price ceiling on certain products or services the government fixes the maximum price that can be charged for that product or services.

A ceiling is effective only when it is set below the price which would otherwise emerge as the equilibrium price in the market. A recent example of such ceiling is the fixation of the price of gasoline by the United States Government. The effect of price ceiling can be analyzed through a demand-supply diagram as above. DD and DD are the initial demand and supply curves respectively. The equilibrium price of gasoline (say) is P and the corresponding quantity is OQ. Let us assume that the demand increases and the demand curve DD shifts to the right to D`D`.

In case of a free market scenario, price will automatically increase to P` to maintain the equilibrium of demand and supply. However, if the government intervenes in the process and exercises some kind of ceiling, the price will not be permitted to rise above P. Clearly there will be an excess demand and the supply will fall short by the amount QQ`. Rent Control and its Effects In case of a price fixation, where the price for a commodity is fixed below the equilibrium level, market forces of demand and supply are not permitted to operate freely.

Rent control is a unique example of such price fixation policy of government authorities in an economy. The best-known example of such price fixation is the ceiling imposed on the rents of houses in New York City by the United States government. This type of ceiling is used by the government authorities (especially in command economies) for rented houses. Rent control can prevent housing markets from reaching equilibrium in case when the rents are already set below the market equilibrium price.

Rent control limits the increase in monthly rental rates or establishes laws which are used to determine the ‘fair’ rents for housing. It keeps the rents lower than that would otherwise prevail in competitive market equilibrium. Such deliberate policy of controlling rents undoubtedly helps the lower-income groups of people who would otherwise have to spent a greater proportion of their income for renting houses. Figure 2: Room Rented in Thousands But it should be borne in mind that the policy of fixing the rents can often cause shortages in the supply of houses.

Suppose the market equilibrium rent per room in a certain city is $100, and at this rent, 4500 rooms are available. Now, let us assume that the local rent control ordinance impose a ceiling of $50 per room. Since the controlled rent is much below the market equilibrium rent, it would definitely create a shortage in the rooms available. As the price of rooms is now less, people would demand more rooms and, on the other hand, due to less profit, the land lords would be unwilling to provide much room.

From the above figure, it is clear that at $50 per room, the number of rooms demanded is 7000, while the number of rooms supplied is only 2000. Clearly the shortage arises from an increase in the number of rooms demanded from the quantity that would prevail at the equilibrium rent, and from a decrease in the quantity of houses supplied to a level below the quantity that would exist at the equilibrium level. Rent control makes the houses less expensive for the tenants.

To counter this policy, landlords decrease the quantity and often the quality of the rooms available which ultimately results in the shortage of rental houses. The only solution of such a crisis lies in some kind of non price allocation or rationing. Since the prices can not increase to ration a shortage during a ceiling period, some other means must be established to distribute available resources to those consumers who are willing and able to pay. Non-price rationing policy distributes the available resources on a basis other than willingness to pay.

There is a huge debate among the economists regarding this issue. Many people argue that non-price rationing gives the lower income group the opportunity to consume more of a product they would, otherwise, not been able to afford. While this is true in some cases, it should also be borne in mind that the lower income class is not always fortunate to obtain available supplies during a shortage period. A simple example of such rationing is a ‘first-come first-serve’ rule.

Available resources are distributed to those who are waiting in the queue. But people often choose not to buy the product or service if the gain they expect from it, is less than the price they have to pay plus the value of their time wasted and also the annoyance of waiting. Conclusion It is crystal clear from the above ideas that, in case of a price ceiling or rent control, there are always dissatisfied buyers, willing to pay more than the legal price to get the products or services they need.

In the long run, the market often transforms in to a zone of black marketing and illegal trading. It is beyond any iota of doubt that, the longer the period, the more destructive is the effects of ceiling; we have worst of both the worlds – higher price and smaller quantity.

Works Cited

  • Block, W. Rent Control, The Concise Encyclopedia of Economics, The Library of Economics and Liberty,
  • http://www. econlib. org/library/Enc/RentControl. html
  • Hazlitt, H. What Rent Control Does, Economics in One Lesson

Calculate the price
Make an order in advance and get the best price
Pages (550 words)
$0.00
*Price with a welcome 15% discount applied.
Pro tip: If you want to save more money and pay the lowest price, you need to set a more extended deadline.
We know how difficult it is to be a student these days. That's why our prices are one of the most affordable on the market, and there are no hidden fees.

Instead, we offer bonuses, discounts, and free services to make your experience outstanding.
How it works
Receive a 100% original paper that will pass Turnitin from a top essay writing service
step 1
Upload your instructions
Fill out the order form and provide paper details. You can even attach screenshots or add additional instructions later. If something is not clear or missing, the writer will contact you for clarification.
Pro service tips
How to get the most out of your experience with MyhomeworkGeeks
One writer throughout the entire course
If you like the writer, you can hire them again. Just copy & paste their ID on the order form ("Preferred Writer's ID" field). This way, your vocabulary will be uniform, and the writer will be aware of your needs.
The same paper from different writers
You can order essay or any other work from two different writers to choose the best one or give another version to a friend. This can be done through the add-on "Same paper from another writer."
Copy of sources used by the writer
Our college essay writers work with ScienceDirect and other databases. They can send you articles or materials used in PDF or through screenshots. Just tick the "Copy of sources" field on the order form.
Testimonials
See why 20k+ students have chosen us as their sole writing assistance provider
Check out the latest reviews and opinions submitted by real customers worldwide and make an informed decision.
Philosophy
Thank you
Customer 452811, February 17th, 2024
Business and administrative studies
perfect
Customer 452773, February 23rd, 2023
ACC/543: Managerial Accounting & Legal Aspects Of Business
EXCELLENT JOB
Customer 452773, January 10th, 2024
Leadership Studies
excellent job as always
Customer 452773, September 2nd, 2023
10th grade English
very good
Customer 452773, March 26th, 2023
Business and administrative studies
looks good thank you
Customer 452773, March 3rd, 2023
Business and administrative studies
excellent paper
Customer 452773, March 3rd, 2023
business
Great job
Customer 452773, February 13th, 2023
DATA565
The support team was late responding , my paper was late because the support team didn't respond in a timely manner. The writer of the paper finally got it right but seems there was a problem getting the revisioin to me.
Customer 452773, April 7th, 2024
Business and administrative studies
Thank you
Customer 452773, March 19th, 2023
Managerial Accounting & Legal Aspects of Business ACC/543
excellent work
Customer 452773, February 7th, 2024
Business and administrative studies
Excellent work ,always done early
Customer 452773, February 21st, 2023
11,595
Customer reviews in total
96%
Current satisfaction rate
3 pages
Average paper length
37%
Customers referred by a friend
OUR GIFT TO YOU
15% OFF your first order
Use a coupon FIRST15 and enjoy expert help with any task at the most affordable price.
Claim my 15% OFF Order in Chat
Close

Sometimes it is hard to do all the work on your own

Let us help you get a good grade on your paper. Get professional help and free up your time for more important courses. Let us handle your;

  • Dissertations and Thesis
  • Essays
  • All Assignments

  • Research papers
  • Terms Papers
  • Online Classes
Live ChatWhatsApp