What are price ceilings?

Price ceilings are defined as maximum price limits imposed by the government on certain goods and services. The primary aim of establishing a price ceiling is to make essential products more affordable for consumers, particularly in situations where the market price may rise to a level that is deemed prohibitively expensive.

When a price ceiling is enforced, it effectively places a cap on the price that sellers can charge. For instance, in the case of rental housing, if the government imposes a rent control policy, landlords are restricted from charging rents above a certain threshold. This can help to ensure that low-income individuals or families can afford housing. However, while price ceilings can provide immediate relief in terms of affordability, they may also lead to unintended consequences such as shortages, as suppliers might be less willing to provide the product at the lower price or may find ways to evade the regulation.

Understanding price ceilings helps clarify their impact and significance within the context of market operations and government interventions.