What is a price ceiling?

A price ceiling is defined as a maximum price established by law that can be charged for a particular good or service. This regulatory limit is typically set to protect consumers from excessively high prices, especially in essential markets such as housing or food. By capping the price, the government aims to make necessary goods more affordable for the general population, particularly in times of crisis or economic hardship.

When a price ceiling is imposed, if the market equilibrium price (the price at which supply and demand meet) is above this ceiling, the price will typically be forced down to the ceiling level. However, this can lead to unintended consequences, such as shortages, since sellers may be less willing to supply products at the lower price, and consumers may demand more of the product due to its affordability.