Today's Question
Governments sometimes set price ceilings (maximum prices) or price floors (minimum prices). Rent control is a price ceiling; minimum wage is a price floor. Why do economists often argue that price ceilings cause shortages, while price floors cause surpluses? Use the apartment rental market as an example.
Model Answer
Rent control (ceiling): If max rent is $1000 but equilibrium is $1500, landlords supply fewer apartments (not profitable to build/maintain), while more people want apartments (it's cheap!). Shortage = long wait lists, discrimination, black markets. Minimum wage (floor): If min wage is $15 but equilibrium is $12, firms want fewer workers, but more people want jobs. Surplus of labor = unemployment. Prices below equilibrium create shortages; prices above create surpluses.