Price Ceiling vs Price Floor
Price Ceiling and Price Floor are two Supply & Demand concepts in AP Economics that students often mix up. In short: price ceiling is a price ceiling is a government-imposed maximum price that can be charged for a good or service. Meanwhile, price floor is a price floor is a government-imposed minimum price that must be paid for a good or service. Here is how they compare side by side.
A price ceiling is a government-imposed maximum price that can be charged for a good or service.
Price ceilings are typically set below the equilibrium price to make essential goods more affordable. However, they can lead to shortages, as quantity demanded exceeds quantity supplied at the ceiling price.
A price floor is a government-imposed minimum price that must be paid for a good or service.
Price floors are typically set above the equilibrium price to support producers' incomes. However, they can lead to surpluses, as quantity supplied exceeds quantity demanded at the floor price. Examples include minimum wage laws.