Econ Price Ceilings And Floors

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.

Econ price ceilings and floors.

Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. The next section discusses price floors. But this is a control or limit on how low a price can be charged for any commodity. Price ceilings prevent a price from rising above a certain level.

When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result. This section uses the demand and supply framework to analyze price ceilings. 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.

Price floors and price ceilings are price controls examples of government intervention in the free market which changes the market equilibrium. They each have reasons for using them but there are large efficiency losses with both of them. Price controls can be price ceilings or price floors. 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 and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but are nonetheless necessary for certain situations.