price ceiling

Popular Terms
Limit beyond which a cost will not be allowed to rise.

Price Ceiling vs. Price Floor

Price floors and price ceilings are both examples of price controls. Price controls are set by the government for a variety of reasons. Typically, price controls won't go into effect unless there is an emergency or some other reason for the government to step in and tip the hand of the free market.

Price Ceiling

Price ceilings are price controls put in place by the government when they believe a good or service is being sold for too high of a price.

They often result in localized supply shortages if the ceiling is set too low. They drive up demand because, by definition, they make a good or service cheaper than the market would have otherwise set the rate at. A price ceiling cannot alter the supply curve in a positive way, it always creates shortages, although sometimes supply is elastic enough to absorb them.

Price Floor

Price floors are price controls put in place by the government when a good or service is selling for too low of a price. Price floors can cause demand shortages, and excess supply. They drive down demand by raising prices higher than they would normally be set by the producer. This has the effect of subsidizing the producer and increasing their incentive to make a particular good or deliver a particular service, but it doesn't alter the demand curve positively.

Use 'price ceiling' in a Sentence

I did not make a lot of money, so I was thankful there was a price ceiling that would ensure I could afford important products.
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If you can accurately assess your price ceiling you will be able to get every penny out of your product.
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There was a price ceiling on our product so our profits were capped. We were pleased with this arrangement due to our sales volume.
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