What is price ceiling?

A price ceiling is a limit set by law or contract on how high a price can go. Rent controls and caps on fuel or medicine prices are common examples. It matters because a ceiling set below the natural price makes goods cheaper for those who get them, but it also changes how much is supplied and who ends up with it.

How it works

When the ceiling sits above the normal market price, nothing changes. When it sits below, buyers want more at the lower price while sellers are willing to supply less. The result is a shortage, which is the gap between the quantity demanded and the quantity supplied at the capped price.

A shortage then needs a way of deciding who receives the goods. Queues, rationing, favoritism or informal side payments take over from the price, and quality can drop because sellers have less reason to maintain it. Over time, lower supply can reduce the very goods the cap was meant to protect.

Example

Say a city's apartments would rent for 1,000 per month in a free market, with 500 apartments offered and 500 wanted. The city caps rent at 800. At that price, tenants want 600 apartments, while landlords offer only 450 because some convert to other uses. The shortage is 600 minus 450, or 150 apartments. Tenants who find a home save 200 per month, but 150 households that would have found one at 1,000 now cannot. This is an illustration with invented numbers.

How to model it in Machinations

Model landlords' supply with a Source whose rate is a Register that depends on the price. Model tenant demand with a second Source feeding a Pool called Waiting households. Connect a Lever for the price cap so that it limits the price used by both, and add a Drain for households that find a home. Play with the cap at 1,000 and at 800, and chart the waiting Pool to watch the shortage appear and grow.