What Is A Price Ceiling And Price Floor

The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external.

What is a price ceiling and price floor.

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 floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. By observation it has been found that lower price floors are ineffective. It has been found that higher price ceilings are ineffective.

Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. But this is a control or limit on how low a price can be charged for any commodity. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. Price floor has been found to be of great importance in the labour wage market.

Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. A price floor must be higher than the equilibrium price in order to be effective. Like price ceiling price floor is also a measure of price control imposed by the government.