Market Forces and Price Ceilings: A Classroom Experiment
AbstractThe effect of price controls on competitive equilibrium is a standard topic in many undergraduate economics courses. This classroom experiment demonstrates the effect of rent control (price ceilings) on the market for apartments. As participants in the experiment, students experience the effect of a price ceiling as buyers (renters) and sellers (landlords). The classroom-posted offer market exhibits a shortage under a binding price ceiling. Further, we explore a secondary response to rent control. When given the opportunity, landlords lower the quality of the apartments by reducing maintenance expenditures under the price ceiling, thus moving the market back to equilibrium. Since many students are themselves renters, they should relate to changes in quality due to lower maintenance by landlords. This experiment will stimulate discussion on market forces and on public policy aimed at restricting prices.
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Bibliographic InfoArticle provided by Economics Network, University of Bristol in its journal International Review of Economics Education.
Volume (Year): 4 (2005)
Issue (Month): 2 ()
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Postal: University of Bristol, BS8 1HH, United Kingdom
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Isaac, R Mark & Plott, Charles R, 1981.
"Price Controls and the Behavior of Auction Markets: An Experimental Examination,"
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- Charles A. Holt, 1999. "Teaching Economics with Classroom Experiments: A Symposium," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 603-610, January.
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- Gyourko, Joseph & Linneman, Peter, 1990. "Rent controls and rental housing quality: A note on the effects of New York City's old controls," Journal of Urban Economics, Elsevier, vol. 27(3), pages 398-409, May.
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