Econ Price Ceilings And Floors

Price floors prevent a price from falling below a certain level.

Econ price ceilings and floors.

This section uses the demand and supply framework to analyze price ceilings. A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price. When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result. Like price ceiling price floor is also a measure of price control imposed by the government.

Price floors and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but are nonetheless necessary for certain situations. 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. But this is a control or limit on how low a price can be charged for any commodity. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.

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 controls can be price ceilings or price floors. The next section discusses price floors. Although both a price ceiling and a price floor can be imposed the government usually only selects either a ceiling or a floor for particular goods or services.

Price ceilings prevent a price from rising above a certain level.