Business Finance
What is the difference between price floor and price ceiling?

Question Description


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

Final Answer

A price floor is a mandated minimum price for which a specified good or service can be sold.

A price ceiling is a mandated maximum price for which a specified good or service can be sold.

Both price floors and price ceilings inject inefficiencies into markets.  That is, both of these things lead to "dead weight loss" in the market (i.e., consumer or producer surplus that otherwise would have been realized that is lost due to government interference).  Consequently, it is apparent that laws which implement floors and ceilings should be repealed.

Alex Z (997)
UC Berkeley

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