Maximum Price (Price Ceiling) ​

• What is a maximum price?:

  • It occurs when the government sets a price below the equilibrium price to encourage output and consumption.  ​
• Where is the maximum price set?

  below the equilibrium price
• • A price ceiling can be used to protect the interest of consumers from soaring prices, such as escalating rents or food prices.  ​
• Why do Governments Impose Maximum Prices?:

  • To improve the affordability of essential goods and services like housing or food. 
  • Reduce income inequality
• Why do Governments Impose Maximum Prices?:

  • To improve the affordability of essential goods and services like housing or food. 
  • Reduce income inequality
• What does a maximum price create?

  excess demand