Price Controls
Price controls are legal limits on prices set by government. A price ceiling sets a maximum price (e.g., rent control); a price floor sets a minimum price (e.g., minimum wage). Price controls create market distortions if set at levels preventing equilibrium clearing.
Real World
Berlin introduced a rent cap (Mietendeckel) in 2020, freezing rents for five years — landlords withdrew properties from the market, and available listings on Immobilienscout24 fell by over 40%.
Exam Focus
Distinguish clearly between a ceiling (below equilibrium) and a floor (above equilibrium) — reversing them is a common lost-mark error.
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