Econ Price Ceilings And Floors

A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price.

Econ price ceilings and floors.

It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price. When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result. Price floors prevent a price from falling below a certain level. Price controls can be price ceilings or price floors.

Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. Price floors and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but are nonetheless necessary for certain situations. A price ceiling keeps a price from rising above a certain level the ceiling while a price floor keeps a price from falling below a certain level the floor. They each have reasons for using them but there are large efficiency losses with both of them.

This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. Price floors and price ceilings are price controls examples of government intervention in the free market which changes the market equilibrium. But this is a control or limit on how low a price can be charged for any commodity. Price ceilings prevent a price from rising above a certain level.

This section uses the demand and supply framework to analyze price ceilings.