Price Ceiling

Price Ceiling

Supply and demand in an economy cross at an equilibrium price. However, prices may also be subject to floors and ceilings. A price ceiling is a form of price control; a legal cap set by governments as consumer protection actions capping the price at which goods and services can be offered (e.g. rent controls, the price of medication or consumer healthcare products during the pandemic to prevent profiteering, or the price of food staples in developing countries). One effect of imposing a price ceiling is reduced supply and excess demand, particularly if the ceiling price is close to the market price, as the incentive to supply at the cap is removed.

logo-animationlogo-animationlogo-animation

Related terms