Maximum price set by the government to prevent prices from rising too high, such as rent ceilings?

Maximum price set by the government to prevent prices from rising too high, such as rent ceilings?

• A. Rationing
• B. Black market
• C. Price controls
• D. Price ceiling

Answer: (D)

A price ceiling is a legal maximum price set by the government to prevent prices from rising too high. When set below the market-clearing price, it binds and keeps rents from going up, but it often leads to a shortage because demand exceeds supply at that cap. In housing, this can reduce incentives to supply or maintain units, leading to fewer available rental homes and longer search times. If the cap is above the equilibrium, it has little effect. The concept here is a price ceiling, a specific form of price controls; other ideas like rationing or black markets can arise as side effects, while a price floor would be a minimum price, not a maximum.

A price ceiling is a legal maximum price set by the government to prevent prices from rising too high. When set below the market-clearing price, it binds and keeps rents from going up, but it often leads to a shortage because demand exceeds supply at that cap. In housing, this can reduce incentives to supply or maintain units, leading to fewer available rental homes and longer search times. If the cap is above the equilibrium, it has little effect. The concept here is a price ceiling, a specific form of price controls; other ideas like rationing or black markets can arise as side effects, while a price floor would be a minimum price, not a maximum.