A Good Example Of A Price Floor Is Rent Control

Example of a price ceiling.

A good example of a price floor is rent control. If it is to have any effect the rent level must be set at a rate below that which would otherwise have prevailed. The local government can limit how much a landlord can charge a tenant or by how much the landlord can increase prices annually. Agricultural price supports. Rent control is a classic example of a price ceiling.

New york and san francisco have famous rent control laws. A binding price ceiling imposed on a good leads to excess demand for this good. A price floor must be higher than the equilibrium price in order to be effective. In the horizontal line at the price of 500 shows the legally fixed maximum price set by the rent control law however the underlying forces that shifted the demand curve to the right are still there.

If the government imposes a rent control on apartments this will lead to an excess supply of apartments. A government imposes price ceilings in order to keep the price of some necessary good or service affordable. Rent control from the concise encyclopedia of economics. Rent control is a common type of price ceiling that large municipalities such as new york city often impose to make housing more affordable for low income tenants.

Suppliers are willing to supply more at the price floor than the market wants at that price. Suppose that a city government passes a rent control law to keep the price at the original equilibrium of 500 for a typical apartment. If the price of a good is. To ensure more affordable housing the government often sets a price ceiling on rents.

The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external. A price ceiling is a type of price control usually government mandated that sets the maximum amount a seller can charge for a good or service. For example in 2005 during hurricane katrina the price of bottled water increased above 5 per gallon. Rent control aims to ensure the quality and affordability of housing in the rental market.

Rent control like all other government mandated price controls is a law placing a maximum price or a rent ceiling on what landlords may charge tenants. A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service. A price ceiling is a legal maximum price that one pays for some good or service.