Market Forces and Price Ceilings: A Classroom Experiment
The 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.
Volume (Year): 4 (2005)
Issue (Month): 2 ()
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References listed on IDEAS
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- Isaac, R Mark & Plott, Charles R, 1981.
"Price Controls and the Behavior of Auction Markets: An Experimental Examination,"
American Economic Review,
American Economic Association, vol. 71(3), pages 448-59, June.
- Isaac, R. Mark & Plott, Charles R., . "Price Controls and the Behavior of Auction Markets: An Experimental Examination," Working Papers 253, California Institute of Technology, Division of the Humanities and Social Sciences.
- Charles A. Holt, 1999. "Teaching Economics with Classroom Experiments: A Symposium," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 603-610, January.
- Smith, Vernon L & Williams, Arlington W, 1981. "On Nonbinding Price Controls in a Competitive Market," American Economic Review, American Economic Association, vol. 71(3), pages 467-74, June.
- Brown Kruse, Jamie & Thompson, Mark A., 2001. "A comparison of salient rewards in experiments: money and class points," Economics Letters, Elsevier, vol. 74(1), pages 113-117, December.
- Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
- 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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