What Is A Price Ceiling And Price Floor

A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service.

What is a price ceiling and price floor. This is usually done to protect buyers and suppliers or manage scarce resources during difficult economic times. A price floor must be higher than the equilibrium price in order to be effective. 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. 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.

But this is a control or limit on how low a price can be charged for any commodity. 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. Price floors and price ceilings are government imposed minimums and maximums on the price of certain goods or services. Like price ceiling price floor is also a measure of price control imposed by the government.

Price floor has been found to be of great importance in the labour wage market. It has been found that higher price ceilings are ineffective. 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.