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By the end of this section, you will be able to:

  • Explain price controls, price ceilings, and price floors
  • Analyze demand and supply as a social adjustment mechanism

Controversy sometimes surrounds the prices and quantities established by demand and supply, especially for products that are considered necessities. In some cases, discontent over prices turns into public pressure on politicians, who may then pass legislation to prevent a certain price from climbing “too high” or falling “too low.”

The demand and supply model shows how people and firms will react to the incentives provided by these laws to control prices, in ways that will often lead to undesirable consequences. Alternative policy tools can often achieve the desired goals of price control laws, while avoiding at least some of their costs and tradeoffs.

Price ceilings

Laws that government enacts to regulate prices are called Price controls . Price controls come in two flavors. A price ceiling    keeps a price from rising above a certain level (the “ceiling”), while a price floor    keeps a price from falling below a certain level (the “floor”). This section uses the demand and supply framework to analyze price ceilings. The next section discusses price floors.

In many markets for goods and services, demanders outnumber suppliers. Consumers, who are also potential voters, sometimes unite behind a political proposal to hold down a certain price. In some cities, such as Albany, renters have pressed political leaders to pass rent control laws, a price ceiling that usually works by stating that rents can be raised by only a certain maximum percentage each year.

Rent control becomes a politically hot topic when rents begin to rise rapidly. Everyone needs an affordable place to live. Perhaps a change in tastes makes a certain suburb or town a more popular place to live. Perhaps locally-based businesses expand, bringing higher incomes and more people into the area. Changes of this sort can cause a change in the demand for rental housing, as [link] illustrates. The original equilibrium (E 0 ) lies at the intersection of supply curve S 0 and demand curve D 0 , corresponding to an equilibrium price of $500 and an equilibrium quantity of 15,000 units of rental housing. The effect of greater income or a change in tastes is to shift the demand curve for rental housing to the right, as shown by the data in [link] and the shift from D 0 to D 1 on the graph. In this market, at the new equilibrium E 1 , the price of a rental unit would rise to $600 and the equilibrium quantity would increase to 17,000 units.

A price ceiling example—rent control

The graph shows a shift in demand with a price ceiling.
The original intersection of demand and supply occurs at E 0 . If demand shifts from D 0 to D 1 , the new equilibrium would be at E 1 —unless a price ceiling prevents the price from rising. If the price is not permitted to rise, the quantity supplied remains at 15,000. However, after the change in demand, the quantity demanded rises to 19,000, resulting in a shortage.
Rent control
Price Original Quantity Supplied Original Quantity Demanded New Quantity Demanded
$400 12,000 18,000 23,000
$500 15,000 15,000 19,000
$600 17,000 13,000 17,000
$700 19,000 11,000 15,000
$800 20,000 10,000 14,000

Questions & Answers

memory of development brain of the human psychologist
SERAJ Reply
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Ananya
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Shilan
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zge
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Emm
usef
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Gil
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Shilan
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Shilan
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Daniella
waasup
Isaiah
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Sara
hello
androi
Haw are you
Shilan
im ok you
Daniella
Me to
Shilan
Thanks
Shilan
What's going?
Shilan
working
Daniella
how did psychology begin?
Valerie Reply
of psychologys commencement, the traces can be seen in the work of Aristotle, where he talk about soul and body, likewise work in durrant, de anima, all these were somewhere supporting dualism, in which soul could exist separately from body
amaan
but if you talk about the moder psychology, Gustav fechner, is credited with performing scientific experiments, basis of his experiments in psychology with his studies perception.
amaan
does psychology deal with love?
Mohammed Reply
Maybe, i think
edem
I definitely would say yes
Clara
how so
Isaiah
*triarchic
Meredith
there are so many different reasons why you can fall in love with someone, many of them develope subconsciously -> psychology
Clara
love messes with the brain, a lot, ergo I believe that Psychology does indeed deal with love
what is synapse
Katie Reply
In the central nervous system, a synapse is a small gap at the end of a neuron that allows a signal to pass from one neuron to the next. synapse are found where nerve cells connect with other nerve cells
Najeem
a synapse the connection is where a neuron cell connects to another neuron cell.
Shaun
good
Jobe
what is psychology
Jobe
can you do auto book auto
Mariah Reply
WHT u mean?
usef
yes
MD
heyy, may i join the conversation please?
edem Reply
who is the father of psychology
Richy Reply
aristatil
Ramadevi
and please, how would you guys, describe the study of psychology at college ?
edem
psychologist student?
Aspen
i mean not yet but am about to start college so wanna know how is it(college in general and psychology course) please
edem
Psychology is the study of mind and behaviour. So if you will take psychology as a subject so you will get to know how your everything (physical, mental, social, spiritual aspects) effects your behaviour
sakina
With this brief knowledge you can help people to cope up with their problems and only you can guide them correctly
sakina
And if you go for further specialisations you can study hypnosis, face reading, body language etc
sakina
Thanks a lot🙏🏾 And ik some of the stuffs u said but i am also going to write thesis, right ?
edem
ok no prob, thanks a lot🙏🏾✨
edem
cerebellum
Khan
hae everyone, hope you are well this evning my question is what is the difference between drive and motivation
Michael
good question
Rainee
drive is more like an impulse or urge and i think they both go together (drive and motivation) even if there is a slight difference
edem
@ Michael Drive is delivered to be innate without the use of an external stimuli, motivation normally evolves an outside stimuli which may include praise, appreciate, or reward.
Reginald
*believed...sorry for typo
Reginald
@Reginald, can't the motivation come from the inner self?
edem
Good question, please give an example.
Reginald
can we say desire of success for example
edem
Wilhelm Wundt is the father of psychology
ipau
Wilhem Wundt thank you for the road that you opened.
Qwanta
You mean who is the father of having a great educated argumentative guess? nothing is more wrong than this question. The question is you should ask yourselfs is, how sure are you abour their scientific studying? one's percieved assimilated approach to judging another person and saying they are
Roger
the biggest problem with scientific research and data is that ya you could get the same result 1000 times then it could go the other way 1000 times, but we would never know that and we did, we would still say ya but the proof is there. The only thing science proves is that humanity has
Roger
no facts about human behavior in the scientific context, but more in the trial and error.. sorry to tell you, but so far no one has proven Father of anything, thats up to you and i, judgement is bias, science is good enough lazy
Roger
cognitive development is the growing and development of the brain.
Jessy Reply
Anyone knows about Techno-fascism?
Hussein Reply
Ecofascism is a theoretical political model in which an authoritarian government would require individuals to sacrifice their own interests to the "organic whole of nature". The term is also used as a rhetorical pejorative to undermine the environmental movement.
ipau
what's the big difference between prejudice and discrimination?
Danice Reply
A prejudiced person may not act on their attitude.  Therefore, someone can be prejudiced towards a certain group but not discriminate against them.  Also, prejudice includes all three components of an attitude (affective, behavioral and cognitive), whereas discrimination just involves behavior
Nancy Lee
hi
basher
hello
Rahul
what is all about cognitive development?
Kamohelo
cognitive development is the growing and development of the brain
Jessy
how do you control a variable when using spss whilst running a pearsons correlation analysis?
Jessie Reply
it dependa on your study. according to what you want to say and explain your result
Pouran
why does it say her and she
Jayla Reply
stages of cognitive development
brivia Reply
sensory preoperatinal concrete formal
Rajendra
what is psychology
Chethani Reply
the study of insecurities and the effect on the host .
Sera
Psychology is the scientific study of behavior & mental processes
Angela
psychology is science about learning human behaviour
Zhamshid
behaviorosm
Khan
In thinking about the case of Candace described earlier, do you think that Candace benefitted or suffered as a result of consistently being passed on to the next grade?
Nene Reply
Equilibrium price is a stable price and it must stay.discuss
Elvis Reply
Card 14 / 21: What are the similarities between a consumer’s budget constraint and society’s production possibilities frontier, not just graphically but analytically?
Ali Reply

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Source:  OpenStax, Principles of macroeconomics for ap® courses. OpenStax CNX. Aug 24, 2015 Download for free at http://legacy.cnx.org/content/col11864/1.2
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