Question

Why is it typically difficult to end price ceilings once they have been in place for...

Why is it typically difficult to end price ceilings once they have been in place for a long time?

Homework Answers

Answer #1

Price celings refers to the situation where the price is kept below the market price. A good example would be in case of rent controls where landlords are forbidden to charge a rent above a particular level. This creates a situation of excess demand as there is too much demand at that price below the market price. Once such a price is there in place for a long time the demanders of the flats for rent for instance, as in this particular case will be habituated at that price and any attempts to increase subsequently will not sustain as the market will not allow it. The market perception becomes such that the price celing effectively becomes generally accepted and so it becomes tougher to remove.

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