Econ Price Ceilings And Floors

When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result.

Econ price ceilings and floors.

Price floors and price ceilings are price controls examples of government intervention in the free market which changes the market equilibrium. A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price. This section uses the demand and supply framework to analyze price ceilings. 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.

Price ceilings prevent a price from rising above a certain level. But this is a control or limit on how low a price can be charged for any commodity. They each have reasons for using them but there are large efficiency losses with both of them. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.

Like price ceiling price floor is also a measure of price control imposed by the government. Price floors prevent a price from falling below a certain level. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. 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.

The next section discusses price floors.