Discussion On Price Ceilings And Price Floors – Essay Example
Information 15 April Price Floor and Price Ceiling Government regulations help to create a specific economic outcome that is desirable for protecting price variation and to create a market that is conducive to competition. There are two specific techniques that governments can utilize to achieve these goals which are called price floor and price ceiling. A Price Floor is a legally imposed minimum price on the market, whereby any transaction that is below this price is prohibited (“Market Equilibrium” par. 16). The floor price is set above the market equilibrium. This technique is performed because the government officials and economic professionals believe that the equilibrium price is too low. A price floor can be imposed on goods or services, and a common example of price flooring is found in the government regulated minimum wage. By utilizing this technique, the government is actively working to create a surplus of goods or services to control the price and decrease competition.
On the other hand, a Price Ceiling is a legally imposed maximum price on the market, whereby any transaction that is above this price is prohibited (“Market Equilibrium” par. 17). This technique is exactly the opposite of price flooring in which the market equilibrium price is determined to be too high. Therefore, the price ceiling is set to keep goods and services affordable for all individuals without discriminating based on income or economic status. An example of this technique can be found in government-regulated rent control in which the cost of rent in specific areas has a ceiling and no person can be charged more than the ceiling. This technique is used by the government to actively create a shortage of goods or services.
"MARKET EQUILIBRIUM." Fullerton College Staff Web Pages. Web. 16 Apr. 2010. .