price celling vs price floor
what is the different between price celling and price floor??
how useful is it ??
- ?Lv 61 十年前最愛解答
A price ceiling is a government-imposed limit on how high a price can be charged on a product. For a price ceiling to be effective, it must differ from the free market price.
A price ceiling set above the free-market equilibrium price is called a non-binding price ceiling. In this case, the ceiling has no practical effect. The government has mandated a maximum price, but the market cannot be a price that high.
In contrast, A price ceiling set below the free-market price is called a binding price-ceiling. In this case, the price ceiling has a measurable impact on the market.
Suppliers find they can no longer charge what they had been charging for their products. As a result, some suppliers drop out of the market. This represents a reduction in the quantity supplied. Meanwhile, demanders find that they can now buy the same product at a lower price. As a result, market demand increases as new buyers enter the market and existing buyers consume more of the good.
As a result of these two actions, demand exceeds supply and a shortage ensues. The good must then be rationed by non-market means, such as waiting in line.
Price ceilings are often intended to protect consumers from certain conditions that could make necessities unattainable. But they can also cause problems if they are used for a prolonged period of time without controlled rationing. A good example is rent control in New York City. When soldiers were coming back from World War II and starting families (causing a large demand for apartments), but stopped receiving pay (there was no longer a war), many could not deal with the jumping rent. The government put in price controls, so the soldiers and their families were able to pay their rent and keep their homes. However, this increased the demand for apartments and lowered the supply, meaning that all available apartments were rapidly taken, until there were none left for any late-comers.
A price floor is a government-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price.
A price floor can be set above or below the free-market equilibrium price. In the second graph at right, the dashed green line represents a price floor set below the free-market price. In this case, the floor has no practical effect. The government has mandated a minimum price, but the market already bears a higher price.
In contrast, a price floor set above the market equilibrium price has several side-effects. Demanders find they must now pay a higher price for the same product. As a result, they reduce their purchases or drop out of the market entirely. Meanwhile, suppliers find they are guaranteed a new, higher price than they were charging before. As a result, they increase production.
Taken together, these effects mean there is now an excess supply of the product in the market (third graph). In order to maintain the price floor over the long term, the government must take action to remove that supply.
Price floors set above equilibrium market prices cause surpluses. A historical (and current) example of a price floor are minimum wage laws, laws specifying the lowest wage a company can pay an employee (employees are suppliers of labor and the company is the consumer in this case). When the minimum wage is set higher than the equilibrium market price for unskilled labor, a surplus of labor is created (more people are looking for jobs than can find jobs). A minimum wage above the equilibrium wage would induce employers to hire fewer workers as well as cause more people to enter the labor market. The equilibrium wage for a worker would be dependent upon the worker's skill sets along with market conditions.
- 1 十年前
Price celling價格上限 = the highest premitted price of a good or service.
Price floor 價格下限 = the lowest premitted price of a good or service.
For price celling, it is set out by the government to prevent a good or a service from exceeding a celling price....
so for the price floor, it will be the other way round.資料來源： economics book