Concept Of Price Ceiling And Price Floor With Examples

The equilibrium price commonly called the market price is the price where economic forces such as supply and demand are balanced and in the absence of external.

Concept of price ceiling and price floor with examples. A good example of this is the oil industry where buyers can be victimized by price manipulation. The graph below illustrates how price floors work. They are usually put in place to protect vulnerable buyers or in industries where there are few suppliers. But this is a control or limit on how low a price can be charged for any commodity.

Now the government determines a price ceiling of rs. Price ceilings impose a maximum price on certain goods and services. Like price ceiling price floor is also a measure of price control imposed by the government. When price floors are set it means that the government imposes a minimum price for a product.

Here in the given graph a price of rs. A price floor is a government or group imposed price control or limit on how low a price can be charged for a product good commodity or service. It is legal minimum price set by the government on particular goods and services in order to prevent producers from being paid very less price. 3 has been determined as the equilibrium price with the quantity at 30 homes.

Let us take the house rent market the price determined as set of equilibrium price for 30 homes is 10 000. However prolonged application of a price ceiling can lead to black marketing and unrest in the supply side. Let s consider the house rent market. But once the government makes price ceiling of 7 000 thus they have to charge as per government rules.

For example labor costs in the united states have a price floor of.