Price Ceilings and Price Floors
The price cannot exceed the ceiling
90 S price. MAX price
80 To be effective, the price ceiling must
be set below the equilibrium price.
60 An effective price ceiling causes
Excess Demand or a shortage.
40 Price ceiling
For example, if the government sets a
Price ceiling = $30, then
20 Quantity demanded = 60 units and
D Quantity supplied = 20 units, causing
0 a shortage of 60-20 units.
20 40 60 80 90
Widgets (units) =40 unit
S Price cannot be lower than the floor