Price Controls
Learn about Price Controls - Price Ceilings and Price Floors
Author:Krish Beachoo
Edu Level: Unit1
Date: Apr 1 2026 - 8:00 PM
⏱️Read Time:
What is a Price Control
Price Controls are prices set of controlled by the GOVERNMENT.
They are set to benefit the consumers.
Types of price Controls
(1) Maximum Price / Price Ceiling
A price ceiling is the maximum price set by the government BELOW the equilibrium price.
At $P_c$ ,
$$ Quantity \space Supplied = q_1 $$
$$ Quatity \space Demanded = q_2 $$
$$ \therefore q_2 > q_1 $$
$$ Quantity \space Demanded > Quantity \space Supplied \space \Rightarrow SHORTAGE $$
Examples of Price Ceilings
- Rent Control (Housing Market)
- Interest Rate Ceiling (Banks)
Drawback of Price Ceilings
- Shortage of foods occur because demand > supply.
- Black Markets may develop.
- Government will implement rationing schemes.
(2) Minimum Price / Price Floor
A price floor is a minimum price set by the government above the quilibrium proce ie at $P_f$ .
Price floors are set to benefit the producers.
At $P_f$ ,
$$ Quantity \space Supplied = q_1 $$
$$ Quatity \space Demanded = q_2 $$
$$ \therefore q_1 > q_2 $$
$$ Quantity \space Supplied > Quantity \space Demanded \space \Rightarrow SURPLUS$$
Examples of Price Floors
- Agricultural Products
- Minimum Wage ($20.50 per hour)
Drawbacks of Price Floors
- Surplus/excess supply may occur in the amount of $q_1 \space to \space q_2$ .
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