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.

Price floors and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but are nonetheless necessary for certain situations. Price ceilings prevent a price from rising above a certain level. Price floors prevent a price from falling below a certain level. 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. Like price ceiling price floor is also a measure of price control imposed by the government. 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.

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. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. This section uses the demand and supply framework to analyze price ceilings. They each have reasons for using them but there are large efficiency losses with both of them.

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