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Market Forces and Price Ceilings: A Classroom Experiment

Jamie Brown Kruse, Ozlem Ozdemir () and Mark A. Thompson ()
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Jamie Brown Kruse: East Carolina University
Mark A. Thompson: Stephen F. Austin State University

International Review of Economic Education, 2005, vol. 4, issue 2, 73-86

Abstract: 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.

Date: 2005
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Handle: RePEc:che:ireepp:v:4:y:2005:i:2:p:73-86