Price ceiling is a government-imposed limit on how high a price can be charged for a product. It's set below the equilibrium market price, to make certain goods more affordable, especially for low income households. This is a form of price control.

Imagine a bakery selling baguettes. The government, like France used to do until the late '80s, may set a price ceiling on baguettes to prevent them from becoming too expensive for ordinary folks to buy. Similarly, rent controls are another common type of price ceiling, used in cities like Portland, Oregon, and others across the USA, to keep housing affordable.

✍️Note:The equilibrium price is the market-determined price where supply meets demand. Rent controls act as a cap on this, leading to an interesting set of outcomes:

• Shortages: With rent capped, landlords offer fewer units than tenants are willing to rent, leading to a shortage of housing units.

• Non-price Rationing: The housing shortage necessitates new ways of allocating resources. It could be a "first-come, first-served" basis leading to waiting lists. Landlords may choose tenants based on their personal preferences, potentially leading to discrimination.

• Emergence of Parallel Markets: Landlords may start asking for "under-the-table" payments, effectively negating the purpose of the price cap. As a result, higher-income individuals may still get housing, leaving the poor in the same predicament.

• Long-term Issues: The quality of housing may drop due to reduced income from rents, and landlords may even switch to other forms of renting, such as Airbnb, exacerbating the shortage.