Effects of Price Controls on Market Equilibrium

Effects of Price Controls on Market Equilibrium

What are the impacts of pricing ceiling market equilibrium in education market?

In a situation when the government decides to place a price ceiling on the cost of one undergraduate credit hour, there would be excess demand for higher education. A price ceiling has an impact on the market when it is set below the equilibrium price level (Gwartney, Stroup, Sobel & Macpherson, 2013). The situation will create a supply shortage. More parents or individuals would be willing to pay lower prices for the higher education thus increasing its demand. Similarly, since more student would be willing to take more classes, institutions would experience a shortage of class availability.

Does it matter whether or not the ceiling is set above or below the equilibrium price?

A price ceiling matters when the government sets it below the below the equilibrium price. It is a legally imposed maximum price set by the government (Gwartney, Stroup, Sobel & Macpherson, 2013). When the maximum price is placed below the equilibrium price, the demand for higher education will increase thus exceeding the quantity the learning institutions can supply. If the price ceiling is set above the market equilibrium price, it will not have an impact on the economy. This is because it is impossible to charge an amount that is more than what is already being charged.

Who might benefit from this price restriction? Who might be harmed from this price restriction?

With the price restriction, students will benefit because of the lower cost of one undergraduate credit class. The classes will be affordable since the charges are less. On the same note, the students will be harmed from this price restriction. Lower cost of undergraduate credit class will increase demand for higher education. Schools would be unable to accommodate more students due to a shortage of available classes. They will advocate for rationing, and this will harm the students.



Gwartney, J. D., Stroup, R. L., Sobel, R. S., & Macpherson, D. A. (2013). Macroeconomics: Private and public choice. Australia: South-Western Cengage Learning.

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