Floors and Ceilings

A price ceiling is the maximum legal price a seller may charge for a product or service.  The purpose is to allow more consumers to afford a certain good.  Price ceilings produce shortages.

Important Points about price ceilings:

  • The shortage promotes the black market

  • New York exercised price ceilings to control rents

A price floor is the minimum price fixed by the government.  This is invoked to assist the producer of the good.  Price floors cause surpluses

Important Points about price floors:

  • Minimum wage is the classic example of the price floor  

 


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