Question

Explain how a price ceiling works and show how a rent ceiling creates housing shortage,inefficiency, and unfairmess.

Answer 1

Here, the market the equilibrium price is at $200, and the quantity is at Q. After the price ceiling is at place the flat owner cannot increase the price beyond $100. At this price the demand will be 100 and the supply will be only 50, there will be a shortage of 50 in the market.

A price ceiling is a artificial price setting by the government that prevents the market to reach the equilibrium and create a dead weight loss. It will only benefit the person who have a flat at the time of price setting, as the supply has decreased the other people looking for the flats will suffer.