Price Ceilings Flashcards

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What is a price ceiling?

A legal maximum price set by the government. Sellers cannot charge more than this price.

Maximum price or price cap.

To keep essential goods affordable and to protect consumers during high prices.

When it is set below the market equilibrium price. Then it is binding.

Demand rises because the price is lower, and supply falls because sellers get less, causing a shortage.

When quantity demanded is greater than quantity supplied at the current price.

By queues, waiting lists, rationing coupons, or first-come, first-served.

Some people resell at higher prices because demand is greater than supply, which can be illegal.

No. Some pay a lower price, but others cannot buy the good and may face queues.

They receive a lower price and may sell less, so revenue and profit can fall.

Quality may fall as firms cut costs when they cannot charge higher prices.

Rent controls or an energy price cap.