Difference between Price Ceiling and Price Floor

Price control mechanism refers to a set of laws that the government enacts in order to regulate prices in the market. There are two types of price control mechanisms namely, price ceiling and price floor.

Price ceiling refers to the mechanism by which the price for a good is prevented from rising to a certain level. In contrast to that, price floor is the mechanism by which the price of a good is prevented from falling below a certain level.

Let us learn some of the points of difference between price ceiling and price floor.

Price Ceiling

Price Floor

Definition

It is a mechanism of price control where the price for a good is prevented from rising above a certain level

It is a method of price control where the price of a good is prevented from falling below a certain level

When it becomes effective

Price ceiling becomes effective when it is set below the equilibrium price

Price floor becomes effective when it is set at above the equilibrium price

Impact on market

It causes shortage of goods in the market

It causes an excess or surplus of goods in the market

Example

Rent control is one of the most prominent examples of price ceiling

Minimum wages is regarded as one of the commonly used examples of price floor.

This article was all about the topic of Difference between Price Ceiling and Price Floor, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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