TY - JOUR
T1 - Market Forces and Price Ceilings
T2 - A Classroom Experiment
AU - Kruse, Jamie Brown
AU - Ozdemir, Ozlem
AU - Thompson, Mark A.
N1 - Funding Information:
Financial support from Texas Tech Teaching Learning and Technology Center Faculty Incentive Grant to Professor Jamie B. Kruse, Experimental Economics in the Classroom: Experimental Learning Modules is gratefully acknowledged. In addition, we thank two anonymous reviewers for their valuable comments and suggestions.
Publisher Copyright:
© 2005 Economics Network, University of Bristol.
PY - 2005
Y1 - 2005
N2 - 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)
AB - 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)
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U2 - 10.1016/S1477-3880(15)30130-4
DO - 10.1016/S1477-3880(15)30130-4
M3 - Article
AN - SCOPUS:84878293870
SN - 1477-3880
VL - 4
SP - 73
EP - 86
JO - International Review of Economics Education
JF - International Review of Economics Education
IS - 2
ER -