Price Floors and Ceilings Summary

Price Floor

• Definition: A price floor is a minimum price set by the government, preventing prices from dropping below a certain level.
• Effect: Keeps market price higher than equilibrium price.
• Graphical Representation: Appears above the equilibrium price, resembling a ceiling but functioning as a floor.

Price Ceiling

• Definition: A price ceiling is a maximum price set by the government, preventing prices from rising above a certain level.
• Effect: Keeps market price lower than equilibrium price.
• Graphical Representation: Appears below the equilibrium price, resembling a floor but functioning as a ceiling.

Key Distinction

• Price floors prevent prices from dropping; price ceilings prevent prices from rising.
• Both impede the market from reaching equilibrium.