Price Ceilings
Course Outline
Price Ceilings
Price Ceiling: The maximum price allowed for a given good, set by government. From the Principles of Microeconomics course.
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A price ceiling is a maximum price allowed by law. So, for example, if the price ceiling on gasoline is $2.50, it is illegal to buy or sell gasoline at above that price. It's called a ceiling because you cannot go above the ceiling. So, a ceiling is a maximum price. It has five important effects. It's going to create shortages, reductions in product quality, wasteful lines, and other search costs, a loss in gains from trade or a deadweight loss, and a misallocation of resources.
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