What is the difference between a price floor and price ceiling?

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What is the difference between a price floor and price ceiling?

According to the laws of demand and supply and how market equilibrium, efficiency, and equity are reached, do attempts to repeal those laws and mar?et results with price floors and price ceilings justify legislative bodies to implement price controls?

Jul 27th, 2015

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Price Floors :

Price floor, is the setting of minimum price for a good or service. price floor can result in a surplus because the price may be artificially high. Market demand is about volume and price.

Price floors are common in agricultural commodities such as milk or corn, where the controls are designed to protect farmers' income.

Price Celiing :

A price ceiling is the opposite of a price floor: It's the maximum price for a good or service. Rent-control law in major cities is an example of price ceilings. Market demand is the overall demand for a product or service. It doesn't really change in terms of volume but it will if the price is too low or too high.

The four basic laws of supply and Demand are : 

  1. If demand increases (demand curve shifts to the right) and supply remains unchanged, a shortage occurs, leading to a higher equilibrium price.
  2. If demand decreases (demand curve shifts to the left) and supply remains unchanged, a surplus occurs, leading to a lower equilibrium price.
  3. If demand remains unchanged and supply increases (supply curve shifts to the right), a surplus occurs, leading to a lower equilibrium price.
  4. If demand remains unchanged and supply decreases (supply curve shifts to the left), a shortage occurs, leading to a higher equilibrium price.

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Jul 28th, 2015

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