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Price Controls: Ceilings and Floors

The document discusses price controls, specifically price ceilings and price floors, which are government-imposed limits on prices. Price ceilings can lead to shortages by keeping prices below equilibrium, while price floors can create surpluses by raising prices above equilibrium. Additionally, it addresses the concept of rationing, its consequences, and the emergence of black markets as a result of these controls.

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Dr. Menna Kadry
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22 views8 pages

Price Controls: Ceilings and Floors

The document discusses price controls, specifically price ceilings and price floors, which are government-imposed limits on prices. Price ceilings can lead to shortages by keeping prices below equilibrium, while price floors can create surpluses by raising prices above equilibrium. Additionally, it addresses the concept of rationing, its consequences, and the emergence of black markets as a result of these controls.

Uploaded by

Dr. Menna Kadry
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

CHAPTER 6/

SECTION 3
INTERVENTION IN THE
PRICE SYSTEM
PRICE CONTROLS: CEILING AND FLOOR
A price ceiling is the legal maximum price that
sellers may charge for a product.​ it is a type of
price control, usually government authorized,
that sets the maximum amount a seller can
charge for a good or service.
A price floor is the lowest legal price that can
be paid in a market for goods and services,
labor, or financial capital. Perhaps the best
known example of a price floor is the minimum
wage
​The minimum wage is a legal minimum amount
that an employer must pay for a worker.​ it is based
on the view that someone working full time
Price ceiling causes shortage in the
market as it reduces prices below the
equilibrium price .
Price flooring causes surplus in the
market as it rises prices above the
equilibrium price.
CONSEQUENCES OF SETTING PRICES

Most economists advice against the use of


price ceiling and price floors .
Why?
* Interfering in the normal interaction between
supply and demand can cause unintended
imbalances and can prevent markets from
reaching equilibrium.
RATIONING
Rationing: a system of allocating or distributing goods
and services using criteria other than prices.
- It is used during the times of crisis or wars.
Consequences of rationing:
- Unfair
- Expensive
- Black market
Black market: goods and services are illegally bought and
sold in violation of price controls or rationing.​
QUESTIONS

1) What is the difference between a price


floor and a price ceiling?
2) What are the consequences of price floor
and price ceiling on the Market? Elaborate
via graphs
3) How does the existence of the black
market work against the intended purpose
of rationing?​

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