What Is Price Floor And Ceiling Price In Economics. The primary objective is to protect the buyers and sellers from adverse price movements. 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. Price floors prevent a price from falling below a certain level. Examples include rent controls and pay caps.
A price ceiling is the legal maximum price for a good or service while a price floor is the legal minimum price.
On the other hand the price ceiling is the maximum price beyond which a seller cant sell. A point to note is that a government may set both price floor and ceiling for a product. This section uses the demand and supply framework to analyze price ceilings. A price floor is said to exist when the price is set above the equilibrium price and is not allowed to fall.
