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 government imposed minimums and maximums on the price of certain goods or services. 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. This section uses the demand and supply framework to analyze price ceilings. Like price ceiling price floor is also a measure of price control imposed by the government.

A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price. They each have reasons for using them but there are large efficiency losses with both of them. But this is a control or limit on how low a price can be charged for any commodity. 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.

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 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. Price controls can be price ceilings or price floors.

The next section discusses price floors.