Econ Price Ceilings And Floors

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

Econ price ceilings and 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. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. Price floors and ceilings are inherently inefficient and lead to sub optimal consumer and producer surpluses but are nonetheless necessary for certain situations. 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 controls can be price ceilings or price floors. 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. When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result.

But this is a control or limit on how low a price can be charged for any commodity. Like price ceiling price floor is also a measure of price control imposed by the government. The next section discusses price floors. They each have reasons for using them but there are large efficiency losses with both of them.

Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.