PRICE CEILINGS AND FLOORS

Price Ceilings and Floors

Price Ceiling

• A legal maximum price meant to help buyers
• Keeps price from getting too high
• Prevents price gouging (when a seller spikes the prices of goods, services or commodities to a level much higher than is considered reasonable or fair.)

• BELOW THE EQUILIBRIUM POINT !!!

4 Consequences of a Too Low Price Ceiling

1.  A lower price for some consumers
2. Shortages
3. Long lines for buyers
4. Illegal sales above the equilibrium price

Price Floor

• A legal minimum price meant to help sellers
• Keeps product price from falling 

• Ex. Minimum Wage
• ABOVE THE EQUILIBRIUM POINT !!!

4 Consequences of a Too Low Price Floor

1. Higher product price will help a few sellers
2. A surplus
3. Higher taxes
4. Waste