Price Floor and Price Ceiling
🏷️ 1. Price Floor (Minimum Price)
✅ Meaning:
A price floor is the lowest legal price that can be charged for a good or service.
It is set above the equilibrium price to help producers earn more.
🥛 Example: Milk Price Support
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Suppose the equilibrium price of milk is ₹20/litre.
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The government says farmers must get at least ₹25/litre.
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So, the price floor is ₹25.
🔻 What happens?
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At ₹25, more milk is produced (farmers are happy).
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But fewer people buy it (it's costlier).
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So there’s extra unsold milk → called surplus.
🎯 Price floors help producers, but can lead to excess supply.
🔖 2. Price Ceiling (Maximum Price)
✅ Meaning:
A price ceiling is the highest legal price that can be charged.
It is set below the equilibrium price to help consumers buy cheaper.
🏠 Example: Rent Control
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Suppose rent for a flat is ₹10,000/month.
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The government says landlords can charge max ₹7,000/month.
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So, the price ceiling is ₹7,000.
🔺 What happens?
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At ₹7,000, more people want houses.
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But landlords don’t want to rent at low price.
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So there’s a shortage of houses.
🎯 Price ceilings help consumers, but can lead to shortage.
📊 Quick Comparison:
| Feature | Price Floor | Price Ceiling |
|---|---|---|
| Who it helps | Producers (farmers, sellers) | Consumers (buyers, tenants) |
| Set above/below equilibrium? | Above equilibrium price | Below equilibrium price |
| Common result | Surplus (excess supply) | Shortage (excess demand) |
| Example | Minimum wage, MSP for crops | Rent control, medicine price cap |
🧠 Simple Trick to Remember:
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Price Floor = Floor = Minimum = Helps Sellers
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Price Ceiling = Ceiling = Maximum = Helps Buyers