Market Forces and Price Ceilings: A Classroom Experiment

Kruse J. B., Ozdemir O., Thompson M. A.

International Review of Economics Education, vol.4, no.2, pp.73-86, 2005 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 4 Issue: 2
  • Publication Date: 2005
  • Doi Number: 10.1016/s1477-3880(15)30130-4
  • Journal Name: International Review of Economics Education
  • Journal Indexes: Social Sciences Citation Index (SSCI), Emerging Sources Citation Index (ESCI), Scopus, IBZ Online, EconLit
  • Page Numbers: pp.73-86
  • Middle East Technical University Affiliated: No


© 2005 Economics Network, University of Bristol.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. In many cases rent control appears to be the most efficient technique presently known to destroy a city - except for bombing. (Lindbeck, 1972, p. 39)