Definition
• Government imposed prices
• Either equilibrium prices are too high or too low
Equilibrium price too high
• Government will force prices to decrease
• Price ceiling: maximum price below equilibrium
– Can not charge anything higher than max
– Can charge anything below it
• Placed on necessities
Price
ceilings
cause
shortages
Equilibrium price too low
• Government will force prices to increase
• Price floor: minimum price above equilibrium
– Can not charge anything lower than min
– Can charge anything above it
• Placed on valuable goods
Price floors
cause
surpluses