An Overview of Price Ceilings and Price Floors
This post will help you understand the use of price ceilings and price floors, as part of your Prelim Economics course. Price ceilings refer to a maximum price set for a good or service, usually by a government through intervening means. Price ceilings are often seen as a method of price control by the government.
- An example where price ceilings may be used is during times of war for basic food, petrol or rent, to prevent their prices from escalating due to scarcity.
Price floors, on the other hand, are a minimum price that is paid for a good or service. They are often seen as a method of price support by the government.
- An example of where price ceilings are used is the minimum wage, which sets a minimum price for labour that firms must pay. This helps to reduce and minimize the exploitation of labour.
The videos below explain the theory behind the uses of price ceilings and floors, as well as their practical application.