Price Ceilings
Aside from rent control, which you read about in the opening story, there are not many price ceilings in the United States today. But at times they have been widespread. Price ceilings are typically imposed during crises—wars, harvest failures, natural disasters—because these events often lead to sudden price increases that hurt many people but produce big gains for a lucky few. The U.S. government imposed ceilings on many prices during World War II: the war sharply increased demand for raw materials, such as aluminum and steel, and price controls prevented those with access to these raw materials from earning huge profits. Price controls on oil were imposed in 1973, when an embargo by Arab oil-exporting countries seemed likely to generate huge profits for U.S. oil companies. Price controls were imposed on California’s wholesale electricity market in 2001, when a shortage created big profits for a few power-generating companies but led to higher electricity bills for consumers.
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Rent control in New York is, believe it or not, a legacy of World War II: it was imposed because wartime production produced an economic boom, which increased demand for apartments at a time when the labor and raw materials that might have been used to build them were being used to win the war instead. Although most price controls were removed soon after the war ended, New York’s rent limits were retained and gradually extended to buildings not previously covered, leading to some very strange situations.
You can rent a one-bedroom apartment in Manhattan on fairly short notice—if you are able and willing to pay several thousand dollars a month and live in a less-than-desirable area. Yet some people pay only a small fraction of this for comparable apartments, and others pay hardly more for bigger apartments in better locations.
Aside from producing great deals for some renters, however, what are the broader consequences of New York’s rent-control system? To answer this question, we turn to the model we developed in Chapter 3: the supply and demand model.
Modeling a Price Ceiling
To see what can go wrong when a government imposes a price ceiling on an efficient market, consider Figure 4-5, which shows a simplified model of the market for apartments in New York. For the sake of simplicity, we imagine that all apartments are exactly the same and so would rent for the same price in an unregulated market. The table in the figure shows the demand and supply schedules; the demand and supply curves are shown on the left. We show the quantity of apartments on the horizontal axis and the monthly rent per apartment on the vertical axis. You can see that in an unregulated market the equilibrium would be at point E: 2 million apartments would be rented for $1,000 each per month.
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Now suppose that the government imposes a price ceiling, limiting rents to a price below the equilibrium price—say, no more than $800.
Figure 4-7 shows the effect of the price ceiling, represented by the line at $800. At the enforced rental rate of $800, landlords have less incentive to offer apartments, so they won’t be willing to supply as many as they would at the equilibrium rate of $1,000. They will choose point A on the supply curve, offering only 1.8 million apartments for rent, 200,000 fewer than in the unregulated market. At the same time, more people will want to rent apartments at a price of $800 than at the equilibrium price of $1,000; as shown at point B on the demand curve, at a monthly rent of $800 the quantity of apartments demanded rises to 2.2 million, 200,000 more than in the unregulated market and 400,000 more than are actually available at the price of $800. So there is now a persistent shortage of rental housing: at that price, 400,000 more people want to rent than are able to find apartments.
Do price ceilings always cause shortages? No. If a price ceiling is set above the equilibrium price, it won’t have any effect. Suppose that the equilibrium rental rate on apartments is $1,000 per month and the city government sets a ceiling of $1,200. Who cares? In this case, the price ceiling won’t be binding—it won’t actually constrain market behavior—and it will have no effect.
How a Price Ceiling Causes Inefficiency
The housing shortage shown in Figure 4-7 is not merely annoying: like any shortage induced by price controls, it can be seriously harmful because it leads to inefficiency. In other words, there are gains from trade that go unrealized. Rent control, like all price ceilings, creates inefficiency in at least four distinct ways. It reduces the quantity of apartments rented below the efficient level; it typically leads to misallocation of apartments among would-be renters; it leads to wasted time and effort as people search for apartments; and it leads landlords to maintain apartments in inefficiently low quality or condition. In addition to inefficiency, price ceilings give rise to illegal behavior as people try to circumvent them.
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Deadweight loss is the loss in total surplus that occurs whenever an action or a policy reduces the quantity transacted below the efficient market equilibrium quantity.
Inefficiently Low Quantity Because rent controls reduce the number of apartments supplied, they reduce the number of apartments rented, too. Figure 4-8 shows the implications for total surplus. Recall that total surplus is the sum of the area above the supply curve and below the demand curve. If the only effect of rent control was to reduce the number of apartments available, it would cause a loss of surplus equal to the area of the shaded triangle in the figure. The area represented by that triangle has a special name in economics, deadweight loss: the lost surplus associated with the transactions that no longer occur due to the market intervention. In this example, the deadweight loss is the lost surplus associated with the apartment rentals that no longer occur due to the price ceiling, a loss that is experienced by both disappointed renters and frustrated landlords. Economists often call triangles like the one in Figure 4-8 a deadweight-loss triangle.
Deadweight loss is a key concept in economics, one that we will encounter whenever an action or a policy leads to a reduction in the quantity transacted below the efficient market equilibrium quantity. It is important to realize that deadweight loss is a loss to society—it is a reduction in total surplus, a loss in surplus that accrues to no one as a gain. It is not the same as a loss in surplus to one person that then accrues as a gain to someone else, what an economist would call a transfer of surplus from one person to another. For an example of how a price ceiling can create deadweight loss as well as a transfer of surplus between renters and landlords, see the upcoming For Inquiring Minds.
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Winners, Losers, and Rent Control
Price controls create winners and losers: some people benefit from the policy but others are made worse off.
In New York City, some of the biggest beneficiaries of rent control are affluent tenants who have lived for decades in choice apartments that would now command very high rents. These winners include celebrities like actor Al Pacino and the pop singer Cyndi Lauper; Lauper pays only $989 a month for an apartment that would be worth $3,750 if unregulated. There is also the classic case of the actress Mia Farrow’s apartment, which, when it lost its rent-control status, rose from the bargain rate of $2,900 per month to $8,000. Ironically, in cases like these, the losers are the working-class renters the system was intended to help.
We can use the concepts of consumer and producer surplus to graphically evaluate the winners and the losers from rent control. Panel (a) of Figure 4-9 shows the consumer surplus and producer surplus in the equilibrium of the unregulated market for apartments—before rent control. Recall that the consumer surplus, represented by the area below the demand curve and above the price, is the total net gain to consumers in the market equilibrium. Likewise, producer surplus, represented by the area above the supply curve and below the price, is the total net gain to producers in the market equilibrium.
Panel (b) of this figure shows the consumer and producer surplus in the market after the price ceiling of $800 has been imposed. As you can see, for consumers who can still obtain apartments under rent control, consumer surplus has increased. These renters are clearly winners: they obtain an apartment at $800, paying $200 less than the unregulated market price. These people receive a direct transfer of surplus from landlords in the form of lower rent. But not all renters win: there are fewer apartments to rent now than if the market had remained unregulated, making it hard, if not impossible, for some to find a place to call home.
Without direct calculation of the surpluses gained and lost, it is generally unclear whether renters as a whole are made better or worse off by rent control. What we can say is that the greater the deadweight loss—the larger the reduction in the quantity of apartments rented—the more likely it is that renters as a whole lose.
However, we can say unambiguously that landlords are worse off: producer surplus has clearly decreased. Landlords who continue to rent out their apartments get $200 a month less in rent, and others withdraw their apartments from the market altogether. The deadweight-loss triangle, shaded yellow in panel (b), represents the value lost to both renters and landlords from rentals that essentially vanish thanks to rent control.
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Deadweight loss is not the only type of inefficiency that arises from a price ceiling. The types of inefficiency created by rent control go beyond reducing the quantity of apartments available. These additional inefficiencies—inefficient allocation to consumers, wasted resources, and inefficiently low quality—lead to a loss of surplus over and above the deadweight loss.
Inefficient Allocation to Consumers Rent control doesn’t just lead to too few apartments being available. It can also lead to misallocation of the apartments that are available: people who badly need a place to live may not be able to find an apartment, but some apartments may be occupied by people with much less urgent needs.
In the case shown in Figure 4-7, 2.2 million people would like to rent an apartment at $800 per month, but only 1.8 million apartments are available. Of those 2.2 million who are seeking an apartment, some want an apartment badly and are willing to pay a high price to get one. Others have a less urgent need and are only willing to pay a low price, perhaps because they have alternative housing. An efficient allocation of apartments would reflect these differences: people who really want an apartment will get one and people who aren’t all that anxious to find an apartment won’t. In an inefficient distribution of apartments, the opposite will happen: some people who are not especially anxious to find an apartment will get one and others who are very anxious to find an apartment won’t.
Price ceilings often lead to inefficiency in the form of inefficient allocation to consumers: some people who want the good badly and are willing to pay a high price don’t get it, and some who care relatively little about the good and are only willing to pay a low price do get it.
Because people usually get apartments through luck or personal connections under rent control, it generally results in an inefficient allocation to consumers of the few apartments available.
To see the inefficiency involved, consider the plight of the Lees, a family with young children who have no alternative housing and would be willing to pay up to $1,500 for an apartment—but are unable to find one. Also consider George, a retiree who lives most of the year in Florida but still has a lease on the New York apartment he moved into 40 years ago. George pays $800 per month for this apartment, but if the rent were even slightly more—say, $850—he would give it up and stay with his children when he is in New York.
This allocation of apartments—George has one and the Lees do not—is a missed opportunity: there is a way to make the Lees and George both better off at no additional cost. The Lees would be happy to pay George, say, $1,200 a month to sublease his apartment, which he would happily accept since the apartment is worth no more than $849 a month to him. George would prefer the money he gets from the Lees to keeping his apartment; the Lees would prefer to have the apartment rather than the money. So both would be made better off by this transaction—and nobody else would be made worse off.
Generally, if people who really want apartments could sublease them from people who are less eager to live there, both those who gain apartments and those who trade their occupancy for money would be better off. However, subletting is illegal under rent control because it would occur at prices above the price ceiling.
The fact that subletting is illegal doesn’t mean it never happens. In fact, chasing down illegal subletting is a major business for New York private investigators. An article in the New York Times described how private investigators use hidden cameras and other tricks to prove that the legal tenants in rent-controlled apartments actually live in the suburbs, or even in other states, and have sublet their apartments at two or three times the controlled rent. This subletting is a kind of illegal activity, which we will discuss shortly. For now, just note that landlords and legal agencies actively discourage the practice of illegal subletting. As a result, the problem of inefficient allocation of apartments remains.
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Price ceilings typically lead to inefficiency in the form of wasted resources: people expend money, effort, and time to cope with the shortages caused by the price ceiling.
Wasted Resources Another reason a price ceiling causes inefficiency is that it leads to wasted resources: people expend money, effort, and time to cope with the shortages caused by the price ceiling. Back in 1979, U.S. price controls on gasoline led to shortages that forced millions of Americans to spend hours each week waiting in lines at gas stations. The opportunity cost of the time spent in gas lines—the wages not earned, the leisure time not enjoyed—constituted wasted resources from the point of view of consumers and of the economy as a whole.
Because of rent control, the Lees will spend all their spare time for several months searching for an apartment, time they would rather have spent working or in family activities. That is, there is an opportunity cost to the Lees’ prolonged search for an apartment—the leisure or income they had to forgo. If the market for apartments worked freely, the Lees would quickly find an apartment at the equilibrium rent of $1,000, leaving them time to earn more or to enjoy themselves—an outcome that would make them better off without making anyone else worse off. Again, rent control creates missed opportunities.
Price ceilings often lead to inefficiency in that the goods being offered are of inefficiently low quality: sellers offer low-quality goods at a low price even though buyers would prefer a higher quality at a higher price.
Inefficiently Low Quality Yet another way a price ceiling creates inefficiency is by causing goods to be of inefficiently low quality. Inefficiently low quality means that sellers offer low-quality goods at a low price even though buyers would rather have higher quality and would be willing to pay a higher price for it.
Again, consider rent control. Landlords have no incentive to provide better conditions because they cannot raise rents to cover their repair costs but are able to find tenants easily. In many cases, tenants would be willing to pay much more for improved conditions than it would cost for the landlord to provide them—for example, the upgrade of an antiquated electrical system that cannot safely run air conditioners or computers. But any additional payment for such improvements would be legally considered a rent increase, which is prohibited. Indeed, rent-controlled apartments are notoriously badly maintained, rarely painted, subject to frequent electrical and plumbing problems, sometimes even hazardous to inhabit. As one former manager of Manhattan buildings described: “At unregulated apartments we’d do most things that the tenants requested. But on the rent-regulated units, we did absolutely only what the law required…. We had a perverse incentive to make those tenants unhappy.”
This whole situation is a missed opportunity—some tenants would be happy to pay for better conditions, and landlords would be happy to provide them for payment. But such an exchange would occur only if the market were allowed to operate freely.
A black market is a market in which goods or services are bought and sold illegally—either because it is illegal to sell them at all or because the prices charged are legally prohibited by a price ceiling.
Black Markets And that leads us to a last aspect of price ceilings: the incentive they provide for illegal activities, specifically the emergence of black markets. We have already described one kind of black market activity—illegal subletting by tenants. But it does not stop there. Clearly, there is a temptation for a landlord to say to a potential tenant, “Look, you can have the place if you slip me an extra few hundred in cash each month”—and for the tenant to agree if he or she is one of those people who would be willing to pay much more than the maximum legal rent.
What’s wrong with black markets? In general, it’s a bad thing if people break any law, because it encourages disrespect for the law in general. Worse yet, in this case illegal activity worsens the position of those who are honest. If the Lees are scrupulous about upholding the rent-control law but other people—who may need an apartment less than the Lees—are willing to bribe landlords, the Lees may never find an apartment.
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So Why Are There Price Ceilings?
We have seen three common results of price ceilings:
- A persistent shortage of the good
- Inefficiency arising from this persistent shortage in the form of inefficiently low quantity (deadweight loss), inefficient allocation of the good to consumers, resources wasted in searching for the good, and the inefficiently low quality of the good offered for sale
- The emergence of illegal, black market activity
Given these unpleasant consequences, why do governments still sometimes impose price ceilings? Why does rent control, in particular, persist in New York?
One answer is that although price ceilings may have adverse effects, they do benefit some people. In practice, New York’s rent-control rules—which are more complex than our simple model—hurt most residents but give a small minority of renters much cheaper housing than they would get in an unregulated market. And those who benefit from the controls are typically better organized and more vocal than those who are harmed by them.
Also, when price ceilings have been in effect for a long time, buyers may not have a realistic idea of what would happen without them. In our previous example, the rental rate in an unregulated market (Figure 4-6) would be only 25% higher than in the regulated market (Figure 4-7): $1,000 instead of $800. But how would renters know that? Indeed, they might have heard about black market transactions at much higher prices—the Lees or some other family paying George $1,200 or more—and would not realize that these black market prices are much higher than the price that would prevail in a fully unregulated market.
A last answer is that government officials often do not understand supply and demand analysis! It is a great mistake to suppose that economic policies in the real world are always sensible or well informed.
Hunger and Price Controls in Venezuela
Something was rotten in the state of Venezuela—specifically, 30,000 tons of decomposing food in Puerto Cabello in June 2010. The discovery was particularly embarrassing for Venezuelan President Hugo Chávez. He was elected in 1998 on a platform denouncing the country’s economic elite and promising policies favoring the poor and working classes. Among those policies were price controls on basic foodstuffs, which led to shortages that began in 2003 and had become severe by 2006.
Generous government policies led to higher spending by consumers and sharply rising prices for goods that weren’t subject to price controls or which were bought on the black market. The result was a big increase in the demand for price-controlled goods. But a sharp decline in the value of Venezuela’s currency led to a fall in imports of foreign food, and the result was empty shelves in the nation’s food stores.
As the shortages persisted and inflation of food prices worsened (in the first five months of 2010, the prices of food and drink rose by 21%), Chávez declared “economic war” on the private sector, berating it for “hoarding and smuggling.” The government expropriated farms, food manufacturers and grocery stores, creating in their place government-owned ones, which were corrupt and inefficient—it was the government-owned food-distribution company, PDVAL, that left tens of thousands of tons of food to rot in Venezuelan ports. Food production also fell, forcing Venezuela to import 70% of its food.
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Not surprisingly, the shelves were far more bare in government-run grocery stores than in those still in private hands. The food shortages were so severe that they greatly diminished Chávez’s popularity among working-class Venezuelans and halted his expropriation plans. As an old Venezuelan saying has it, “Love with hunger doesn’t last.”
Quick Review
- Price controls take the form of either legal maximum prices—price ceilings—or legal minimum prices—price floors.
- A price ceiling below the equilibrium price benefits successful buyers but causes predictable adverse effects such as persistent shortages, which lead to four types of inefficiencies: deadweight loss, inefficient allocation to consumers, wasted resources, and inefficiently low quality.
- A deadweight loss is a loss of total surplus that occurs whenever a policy or action reduces the quantity transacted below the efficient market equilibrium level.
- Price ceilings also lead to black markets, as buyers and sellers attempt to evade the price controls.
Check Your Understanding 4-2
Question
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The quantity demanded increases by 400 spaces as the price decreases. At a lower price, more fans are willing to drive and rent a parking space.Question
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Under a price ceiling, the quantity demanded exceeds the quantity supplied; as a result, shortages arise.Question
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 ceilings result in wasted resources. The additional time fans spend to guarantee a parking space is wasted time.Question
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 ceilings lead to inefficient allocation of a good— here, the parking spaces—to consumers.Question
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Price ceilings lead to black markets.
Question
KCZ0k0Eoy7ux3Ud2Cqx/nAf5bQ2LD7UEd+sTkRaZYFDL+FrToeB1g4i+hcn8kOVbhogA8tLbe/ItP7EtMRgjhUDARwNmsRKWThPhaON91yvMWPGtZQ/JW+iK4ewSNOw5DWljc3xOc6R7LTR2CBbfvHOkbQ72zTCQ2c7C1F6i/JMEUIuuT342mhZPbRfMtEoJJTXE274OHdYzvmZH8H3WqfnHkos=False. By lowering the price that producers receive, a price ceiling leads to a decrease in the quantity supplied.Question
+Hdab4UXMFDVXrZE/khVE70eLiRcNsmuRcP+6MILJhvoAfCwn7IMF39vhfM1QlNIjKCXvxxxd5GmorzVwLnrfyDWzlieJGnqNnAedw5+FrP/6y8HJOjK9oVqhbPjqqvVfxF7PeR87rVDVgY+UafZuyBdmOGq4GLGVEkCcZFBEfuDrdD3VY3eG4uY8buR9056jvH7q+AwjJ+IYplRHoRlbEiIG9lvuRDBfrugbFGL0Wi24MdR2k3TdRtydR/xn7+6llKlPw==True. A price ceiling leads to a lower quantity supplied than in an efficient, unregulated market. As a result, some people who would have been willing to pay the market price, and so would have gotten the good in an unregulated market, are unable to obtain it when a price ceiling is imposed.Question
pfNe9LLRJW2RKo3KkT55GfY9w2u4VNn6YQY6WTznBTsw4+oz0zgEEIK3TScZKo74FfEpEvtkRXVaAZS4fXJ7v+0DKaO5G7wy3blg2uugESn5uI7Xzt6L0xAOAejopCA1qad+OnEQnCv2/Ecao6s/DLMbJqPNwaBgvrPAJdAN+lRAIbfqLz3A5X7fAMt7OIa6lv8Bji+zAH8BUpIGJaLZ8KGKzkeHrC6ZTrue. Those producers who still sell the product now receive less for it and are therefore worse off. Other producers will no longer find it worthwhile to sell the product at all and so will also be made worse off.
Question
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Since the apartment is rented quickly at the same price, there is no change (either gain or loss) in producer surplus. So any change in total surplus comes from changes in consumer surplus. When you are evicted, the amount of consumer surplus you lose is equal to the difference between your willingness to pay for the apartment and the rent-controlled price. When the apartment is rented to someone else at the same price, the amount of consumer surplus the new renter gains is equal to the difference between his or her willingness to pay and the rent controlled price. So this will be a pure transfer of surplus from one person to another only if both your willingness to pay and the new renter’s willingness to pay are the same. Since under rent control apartments are not always allocated to those who have the highest willingness to pay, the new renter’s willingness to pay may be either equal to, lower, or higher than your willingness to pay. If the new renter’s willingness to pay is lower than yours, this will create additional deadweight loss: there is some additional consumer surplus that is lost. However, if the new renter’s willingness to pay is higher than yours, this will create an increase in total surplus, as the new renter gains more consumer surplus than you lost.Question
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 creates deadweight loss: if you were able to give the ticket away, someone else would be able to obtain consumer surplus, equal to their willingness to pay for the ticket. You neither gain nor lose any surplus, since you cannot go to the concert whether or not you give the ticket away. If you were able to sell the ticket, the buyer would obtain consumer surplus equal to the difference between their willingness to pay for the ticket and the price at which you sell the ticket. In addition, you would obtain producer surplus equal to the difference between the price at which you sell the ticket and your cost of selling the ticket (which, since you won the ticket, is presumably zero). Since the restriction to neither sell nor give away the ticket means that this surplus cannot be obtained by anybody, it creates deadweight loss. If you could give the ticket away, as described above, there would be consumer surplus that accrues to the recipient of the ticket; and if you give the ticket to the person with the highest willingness to pay, there would be no deadweight loss.Question
kr2ZbOFxdc1txVB3lMI3tdXu7Mf9Nqs76CnxQYc0DsqmWymQadsag031Ul5sGtfV447KnXjnxCWq7XurLhCIqV4/JuIrnxkIB2nAoSaXm8Sf+M2OsUkteJ3DLjeMdcTn7Z7bNDIz5l6xNsI0E7yPcAkY56ZNsoJXQ+cGgEIgrBvUb9s6sswA2qpFTf7d3y7ULLFhDP8EVKilP7hw5vHbAzpvXjUf1jsi31ObHjLZL3UkquxndNZrZ48kBZCLHaBvpRZ9xjJBPf6ARv5c8pWD4poRfLVANN5la3mhpcpW8tawQ+S932ek1UwZ/3kix9vx/irYyoiE8TEqibKMNZ2gDKg9Go9z9YA22hcNqnZ4oAwYTGhhOPvn09wbbrs76EQE+3HagbSzqC1nHggxd+Lumw==This creates deadweight loss. If students buy ice cream on campus, they obtain consumer surplus: their willingness to pay must have been higher than the price of the ice cream. Your college obtains producer surplus: the price is higher than your college’s cost of selling the ice cream. Prohibiting the sale of ice cream on campus means that these two sources of total surplus are lost: there is deadweight loss.Question
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Given that your dog values ice cream equally as much as you do, this is a pure transfer of surplus. As you lose consumer surplus, your dog gains equally as much consumer surplus.
Solutions appear at back of book.
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