Price Ceiling
Definition
A price ceiling is a government-imposed maximum price that can be charged for a good or service in the market.
Analogy
Imagine you and your friends are planning to go to a popular concert. However, due to high demand, the ticket prices skyrocket. To make it affordable for everyone, the government sets a maximum price limit on tickets. This maximum price is like a ceiling that prevents ticket sellers from charging more than that amount.
Related terms
Shortage: When a price ceiling is set below the equilibrium price, it creates excess demand and leads to a shortage of goods or services.
Black Market: Sometimes, when there is a price ceiling in place, people may turn to illegal markets where goods are sold at higher prices.
Rent Control: Rent control is an example of a price ceiling applied specifically to rental housing units.
"Price Ceiling" appears in:
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Practice Questions (5)
If the government imposes a price ceiling below the equilibrium price in a market, what is likely to occur?
A government implements a price ceiling on rental apartments in a city. What is the likely impact on the quantity of apartments available in the market?
What happens to the market when a price ceiling is set below the equilibrium price?
What is the primary purpose of a price ceiling set by the government?
What is the purpose of a price ceiling in regulating a monopoly?
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