Economics Supply And Demand Questions Medium
A price ceiling and a price floor are both government-imposed regulations that affect the market equilibrium of a particular good or service. However, they differ in their effects on the market.
A price ceiling is a maximum price set by the government, below which the price of a good or service cannot legally be charged. The purpose of a price ceiling is usually to protect consumers by ensuring affordability. When a price ceiling is set below the equilibrium price, it creates a shortage in the market, as the quantity demanded exceeds the quantity supplied at the capped price. This can lead to long waiting times, black markets, and reduced quality of the product or service.
On the other hand, a price floor is a minimum price set by the government, above which the price of a good or service cannot legally fall. The purpose of a price floor is often to protect producers by ensuring a minimum level of income or profitability. When a price floor is set above the equilibrium price, it creates a surplus in the market, as the quantity supplied exceeds the quantity demanded at the floor price. This surplus can lead to excess inventory, wastage, and potential inefficiencies in the market.
In summary, the main difference between a price ceiling and a price floor lies in their effects on the market equilibrium. A price ceiling creates a shortage, while a price floor creates a surplus.