Price Ceiling Economics Definition

Rationale behind a price ceiling.

Price ceiling economics definition. If market price moves towards the ceiling intervention selling may be used to keep the price within its target range. This price must lie below the equilibrium price in order for the price ceiling to have an effect. For the measure to be effective the price set by the price ceiling must be below the natural equilibrium price.

Price ceiling is a measure of price control imposed by the government on particular commodities in order to prevent consumers from being charged high prices. A price ceiling happens when the government sets a legal limit on how high the price of a product can be. A price ceiling is a type of price control usually government mandated that sets the maximum amount a seller can charge for a good or service.

When a price ceiling is set a shortage occurs. A price ceiling is a limit on the price of a good or service imposed by the government to protect consumers by ensuring that prices do not become prohibitively expensive. 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.

More specifically a price ceiling in other words a maximum price is put into effect when the government believes the price is too high and sets a maximum price that producers can charge. In order for a price ceiling to be effective it must be set below the natural market equilibrium. Term price ceiling definition.

Price ceiling can also be understood as a legal maximum price set by the government on particular goods and services to make those commodities attainable to all consumers. Imagine a balloon floating in your house the balloon cannot go higher than the ceiling. The government is occasionally inclined to keep the price of one good or another from rising too high.

For a price ceiling to be helpful it should be set lower than the market equilibrium. Examples include apartments gasoline and natural gas. The same concept holds with prices and a price ceiling.