Price ceilings

A price ceiling is a government-imposed price control, or limit, on how high a price is charged for a product. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive. Such conditions can occur during periods of high inflation, in the event of an investment bubble, or in the event of monopoly ownership of a product, all of which can cause problems if imposed for a long period without controlled rationing, leading to shortages. Further problems can occur if a government sets unrealistic price ceilings, causing business failures, stock crashes, or even economic crises. In unregulated market economies, price ceilings do not exist.

Rent control is a price ceiling on rent. When soldiers returned from World War II and started families (which increased demand for apartments), but stopped receiving military pay, many could not deal with higher rents. The government put in price controls, so soldiers and their families could pay their rents and keep their homes. However, it increased the quantity demand for apartments and lowered the quantity supplied, meaning that available apartments rapidly decreased until none were available for late-comers. Price ceilings create shortages when producers are allowed to abdicate market share or go unsubsidized.

According to professors Niko Määttänen and Ari Hyytinen, price ceilings on Helsinki City Hitas apartments are economically highly inefficient. They cause queuing, and discriminate against the handicapped, single parents, elderly, and others not able to queue for days. They cause inefficient allocation, as apartments are not bought by those willing to pay the most for them—and those who get an apartment are unwilling to leave it, even when their family or work situation changes since they can't sell it at what they feel the market price should be. These inefficiencies increase apartment shortage and raise the market price of other apartments.

As a result of declining competitive balance following the admission of Footscray, Hawthorn & North Melbourne in 1925, the VFL introduced a ceiling wage of £3 (around 160 Australian dollars at 2008 prices) in 1930. Known as the Coulter Law after George Coulter, it was varied several times before finally being abolished in 1968, being cut in half during World War II and increased in line with inflation after the war.

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