Price Ceilings

Alex Calisto and Michael Kistler

Price ceilings are the maximum price a seller is allowed to charge for a product or service. They are regulations designed to protect low income individuals from not being able to afford important resources.

An example would be when American soldiers returning from World War II found apartment costs in New York to be unaffordable. As a result, the City of New York instituted a price ceiling on rent. Prior to the return of the American soldiers, assume that apartments had been renting for $500 a month, and there was a demand for 600,000 apartments. Now that the City of New York has imposed a price ceiling, by law, rent prices cannot exceed $400. At the lower price, demand obviously increases to 800,000 apartments.

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