Price Floor/Ceiling
Explain the difference between a price floor and price ceiling. Provide a situation in which a price ceiling may be used. What are the effects of this price control on the equilibrium price and quantity?
Both concepts of a price floor and a price ceiling fall under the larger umbrella concept of price controls. A price floor "is the lowest legal price a commodity can be sold at" and are often utilized "by the government to prevent prices from being too low" (Taylor, 2006). The concept is most familiar in terms of the minimum wage, in which the government establishes the lowest possible hourly wage that a worker can be paid; thus, the minimum wage puts a price floor on hourly work. A price ceiling is in effect the opposite of the price floor. Issued by the government, it is the highest possible price that a good can be priced, in order to protect the consumer from prices that are far too high for goods that are important for one's living.
There are several examples of price ceilings in action over history; but, an example of price ceilings that started a while ago and is something that still is in existence today includes rent controlled housing. Rent controlled apartments in New York City started during World War II when soldiers that returned from war had stopped receiving military pay. They were unable to pay their rent and keep their apartments or homes, so the government stepped in and put a ceiling on the price that their apartment or home could be preventing military families from being ousted. Today, rent controlled apartments for individuals that qualify are still allowed to live in rent controlled apartments because price ceilings still exist in this particular example.
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