Price ceiling

A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive. Such conditions can occur during periods of high inflation, in the event of an investment bubble, or in the event of monopoly ownership of a product, all of which can cause problems if imposed for a long period without controlled rationing, leading to shortages. Further problems can occur if a government sets unrealistic price ceilings, causing business failures, stock crashes, or even economic crises. In unregulated market economies, price ceilings do not exist. A price ceiling is a government- or group-imposed price control, or limit, on how high a price is charged for a product, commodity, or service. Governments use price ceilings to protect consumers from conditions that could make commodities prohibitively expensive. Such conditions can occur during periods of high inflation, in the event of an investment bubble, or in the event of monopoly ownership of a product, all of which can cause problems if imposed for a long period without controlled rationing, leading to shortages. Further problems can occur if a government sets unrealistic price ceilings, causing business failures, stock crashes, or even economic crises. In unregulated market economies, price ceilings do not exist. While price ceilings are often imposed by governments, there are also price ceilings which are implemented by non-governmental organizations such as companies, such as the practice of resale price maintenance. With resale price maintenance, a manufacturer and its distributors agree that the distributors will sell the manufacturer's product at certain prices (resale price maintenance), at or below a price ceiling (maximum resale price maintenance) or at or above a price floor. Rent control is a system where the government sets a price ceiling on rent (often in combination with eviction limitations and maintenance requirements). When soldiers returned from World War II and started families, which increased demand for apartments, but stopped receiving military pay, many of them could not deal with higher rents. The government put in price controls so that soldiers and their families could pay their rents and keep their homes. However, it increased the quantity demand for apartments and lowered the quantity supplied, and so the number of available apartments rapidly decreased until none were available for latecomers. Price ceilings create shortages when producers are allowed to abdicate market share or go unsubsidized. According to professors Niko Määttänen and Ari Hyytinen, price ceilings on Helsinki City Hitas apartments are highly inefficient economically. They cause queuing and discriminate against the handicapped, single parents, elderly, and others who are not able to queue for days. They cause inefficient allocation, as apartments are not bought by those willing to pay the most for them. Also, those who get an apartment are unwilling to leave it, even when their family or work situation changes, as they may not sell it at what they feel the market price should be. The inefficiencies increase apartment shortage and raise the market price of other apartments. Uniform wage ceilings were introduced in Australian rules football to address uneven competition for players. In the Victorian Football League (VFL) a declining competitive balance followed a 1925 expansion that had admitted Footscray, Hawthorn and North Melbourne. The effects on financially-weaker clubs were exacerbated in 1929 by the beginning of the Great Depression. In 1930, a new ceiling system, formulated by VFL administrator George Coulter, stipulated that individual players were to be paid no more than A£3 (approximately A$243 in 2017) for a regular home-and-away match, that they must also be paid if they were injured, that they could be paid no more than A£12 (approximately A$975 in 2017) for a finals match, and that the wages could not be augmented with other bonuses or lump-sum payments. The 'Coulter law', as it became known, remained a strictly-binding price ceiling through its history. During its early years, the Coulter law adversely affected only a minority of players, such as stars and players at wealthier clubs. Those individuals experienced, in effect, a drastic cut in wages. For instance, from 1931 the ceiling payment of £3 per game fell below the legal minimum award wage. While players at the more successful clubs of the day, such as Richmond, had previously paid significantly higher average wages, clubs that were struggling financially often could not meet the ceiling under the Coulter law. Clubs with a longstanding amateur ethos became significantly more competitive under the Coulter law, such as Melbourne, which had long attracted and retained players by indirect or non-financial incentives (such as finding players employment not related to football). The Coulter law led to at least one VFL star of the 1930s, Ron Todd, moving to the rival VFA, because he was dissatisfied with the maximum pay that he could receive at Collingwood, As a result of World War II, the wage for a regular game was halved (to £1 and 10 shillings) for the 1942–45 seasons. After the war, the ceilings were modified several times in line with inflation. During the 1950s, the 'Coulter law' was also blamed for shortening the careers of star players such as John Coleman and Brian Gleeson, as they and their clubs could not pay for the private surgery that the players required to continue their careers. The Coulter law was abolished in 1968. However, in 1987 a club-level salary cap was introduced by the VFL and has been retained by its successor, the Australian Football League (AFL). On February 4, 2009, a Wall Street Journal article stated, 'Last month State Farm pulled the plug on its 1.2 million homeowner policies in Florida, citing the state's punishing price controls.... State Farm's local subsidiary recently requested an increase of 47%, but state regulators refused. State Farm says that since 2000, it has paid $1.21 in claims and expenses for every $1 of premium income received.' On January 10, 2006, a BBC article reported that since 2003, Venezuela President Hugo Chávez had been setting price ceilings on food and that the price ceilings had caused shortages and hoarding. A January 22, 2008, article from Associated Press stated, 'Venezuelan troops are cracking down on the smuggling of food... the National Guard has seized about 750 tons of food.... Hugo Chavez ordered the military to keep people from smuggling scarce items like milk.... He's also threatened to seize farms and milk plants....' On February 28, 2009, Chávez ordered the military to seize control of all the rice processing plants in the country temporarily and to force them to produce at full capacity. He alleged they had been avoiding doing so in response to the price caps.