Question

Demonstrate the effects of price ceiling on the rental markets in Sydney.

Does the policy of price ceiling provide a long-term solution to high housing prices in the Sydney region?

Is there an alternative to price ceiling to manage high prices in the rental market.

Answer 1

Here, the market was at an equilibrium at a point A where the rent is at 100 and the available flats are at 75. This was considered as very high rent so the government introduced a rent ceiling at a price of 75. Now the demand has increased to 100 and the supply is at 50 causing a shortage of 50.

In the long run, it will increases the price of rent to be 125 and only 50 flats will be available. If the government want to solve the problem they should increase the supply of the flats as the supply will increase the price will come down.