Define Price Floor And Ceiling

What is price floor.

Define price floor and ceiling.

When a price ceiling is set below the equilibrium price quantity demanded will exceed quantity supplied and excess demand or shortages will result. The opposite of a price ceiling is a price floor which sets a minimum price at which a product or service can be sold. The price floor definition in economics is the minimum price allowed for a particular good or service. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services.

For example rent for an apartment. Price ceiling example for example price ceiling occurs in rent controls in many cities where the rent is decided by the governmental agencies. Price floors and price ceilings are similar in that both are forms of government pricing control. These price controls are legal restrictions on how high or how low a market price can go.

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. The price floor is the minimum price. The next section discusses price floors. Price floors prevent a price from falling below a certain level.

This section uses the demand and supply framework to analyze price ceilings. Like price ceiling price floor is also a measure of price control imposed by the government. 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 ceilings prevent a price from rising above a certain level.

See full answer below. A price ceiling can be defined as the price that has been set by the government below the equilibrium price and cannot be soared up above that. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times.