Price Ceilings

Price Ceilings are a legal maximum price a good can be sold for in a market, which is set below the market equilibrium price. Governments may introduce price ceilings in order to ensure the price of necessity goods does not go too high, or to promote equity in the access of a particular good (e.g university tuition fees or rent controls). The following video will discuss the impacts on a market of imposing a maximum price and how this can create shortages in the market, as well as parallel markets. 

Price Floors

Price floors are a minimum legal price that a good can be sold for in a market, set above the market equilibrium price. These are usually introduced in order to guarantee a minimum price for producers in the product market (Goods supplied by firms and demanded by households) and policies like a national minimum wage in the resource market (Households supply labour and Firms demand Labour). The following video will discuss the impacts on a market of imposing a minimum price and how this can create surpluses in a market. In the product market, this excess supply can be purchased by governments and may be "dumped" (where a good is sold l into other countries markets, potentially forcing producers in those markets to exit the market as they can´t compete. 

In the resource market, this excess supply of labour may create unemployment, as firms may be less willing to hire workers on a higher wage, however more people are willing to work for the higher wage. In this case however, the government doesn´t "purchase" and "dump" the excess supply. 

It is important to remember the difference between the product market (Goods supplied by firms and demanded by households)and the resource market (Households supply labour and Firms demand Labour) in order to properly evaluate the impacts on the stakeholders.