Impact of price ceiling on equilibrium in short-run and long run supply and demand.

The following graph explains the effect of a price ceiling on houses in the short run.

If the price ceiling is above the equilibrium price, there is no effect on the housing market. Whereas if the ceiling is below the equilibrium price, there will be a shortage of houses at the ceiling price, i.e., excess demand. Q_S represents the supply of houses and Q_d indicates the quantity of houses demanded at ceiling price. It also explains how the demand for houses change due to change in price ceiling.

In the figure, we can see that the quantity supplied is less than the quantity demanded for housing markets (Q_s Q ). The consumers are ready to pay P_ws (price with search cost) and the sellers are willing to offer at P_c . The consumers are also ready to spend (P_ws - P_c ) in order to find the scarce goods (houses in this case). This price ceiling leads to reduction in quantity traded and results in inefficiency (deadweight loss) as shown in the figure.