Economics Ceiling Price And Floor Price

National and local governments sometimes implement price controls legal minimum or maximum prices for specific goods or services to attempt managing the economy by direct intervention price controls can be price ceilings or price floors.

Economics ceiling price and floor price. Price ceiling has been found to be of great importance in the house rent market. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price. A price ceiling is a legal maximum price but a price floor is a legal minimum price and consequently it would leave room for the price to rise to its equilibrium level.

Price floors and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but. In other words a price floor below equilibrium will not be binding and will have no effect. Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. The price ceiling definition is the maximum price allowed for a particular good or service.

In general price ceilings contradict the free enterprise capitalist economic culture of the united states. It has been found that higher price ceilings are ineffective. 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 is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times.