Price ceiling
Price floor
The economic effects of price controls: Recap
Price ceiling |
Price floor |
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Complete the price ceiling informaiton in the table below. The price floor information has been provided as an example:
| Welfare effects | ||
| Price ceiling | Price floor | |
| +C-E -- could rise or fall | DCS | -BE -- falls for sure |
| -CF -- falls for sure | DPS | +B-F -- could rise or fall |
| -EF -- falls for sure | DSW | -EF* -- falls for sure |
Price controls have a variety of predicted effects:
1. Quantity shortages (with price ceilings) and surpluses (with price floors)
2. "Non-price" rationing
3. Cheating and evasion
4. Product quality adjustments
5. Welfare losses
6. Wealth transfers
*Note regarding the estimated welfare loss of a price floor: This loss presumes that steps are taken to restrict the final production of suppliers to the quantity that buyers will purchase. Failure to accomplish that will result in a different and larger welfare loss due to overproduction that cannot be sold.