What Is a Price Ceiling?
Price Ceiling The legal maximum price at which an item is sold. The upper price limit can be higher than the equilibrium price or lower than the equilibrium price. The upper price limit is non-limiting, and the lower price is restrictive. Rent control is an example. If the price cap is lower than the equilibrium price, the demand is greater than the supply. Because of the shortage, sellers must somehow ration goods or services among buyers. [1]
Price cap
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- Chinese name
- Price cap
- Foreign name
- Price Ceiling
- Definition
- The legal maximum price to sell an item
- Purpose
- Protecting consumer interests
- Price Ceiling The legal maximum price at which an item is sold. The upper price limit can be higher than the equilibrium price or lower than the equilibrium price. The upper price limit is non-limiting, and the lower price is restrictive. Rent control is an example. If the price cap is lower than the equilibrium price, the demand is greater than the supply. Because of the shortage, sellers must somehow ration goods or services among buyers. [1]
- Price Ceiling The legal maximum price at which an item is sold. The upper price limit can be higher than the equilibrium price or lower than the equilibrium price. The upper price limit is non-limiting, and the lower price is restrictive.
- Price cap (limit price) The maximum price set by the government to limit the rise in the prices of certain goods and factors, the purpose of which is to protect consumer interests
- Impact of price caps on the market
- When the government is driven by consumer complaints to impose price caps on the market, there are two possible outcomes. When the price cap is higher than the price of supply and demand equilibrium, the price cap is non-limiting, and market forces naturally make the economy move toward equilibrium. The price cap has no effect on prices or sales. When the price cap is lower than the price of supply and demand equilibrium, the price cap has a restrictive constraint on the market, resulting in a shortage of goods, and sellers must ration scarce goods among a large number of potential buyers.
- Case
- A common example of a price cap is rent control. In many cities, local governments have set ceilings on rents that landlords can charge tenants. The purpose of this policy is to help the poor make their housing more affordable. Economists often criticize rent control as an inefficient and unfair way to help the poor improve their living standards.