Question

What is a price ceiling? Give and describe an example of a price ceiling in real world applications.

Answer 1

A price ceiling is the maximum regulated amount that a retailer may charge for a product or service. Normally laid down by law, price ceilings are typically only applied to staples such as food and energy products when such goods become inexpensive to regular consumers. Some areas have ceilings to rent to protect renters from rapidly climbing residential rates.

A price ceiling is a standard maximum price one pays for any good or service. A government imposes price ceilings in order to keep the price of some necessary good or service affordable. For example , the price of bottled water increased over $5 per gallon in 2005 during Hurricane Katrina. As a result, several people called for price limits on bottled water so that the price will not grow too fast. The government has not placed a price limit in this particular case but there are other cases of where price caps have occurred.

The demanders outnumber suppliers in many goods and services markets. Consumers, who are often potential voters, often come together to pin down a certain price on a political plan. In some cities, such as Albany, renters have been pressing political leaders to pass rent control laws, a price ceiling that usually works by stating that landlords can raise rents by just a certain maximum percentage each year. Some of the best rent control examples exist in metropolitan areas such as New York, Washington D.C. or San Francisco.