Price Ceiling

AAA

DEFINITION of 'Price Ceiling'

The maximum price a seller is allowed to charge for a product or service. Price ceilings are usually set by law and limit the seller pricing system to ensure fair and reasonable business practices. Price ceilings are usually set for essential expenses; for example, some areas have "rent ceilings" to protect renters from climbing rent prices.

INVESTOPEDIA EXPLAINS 'Price Ceiling'

Price ceilings are regulations designed to protect low income individuals from not being able to afford important resources. However, many economists question their effectiveness for several reasons. For example, price ceilings will have no effect if the equilibrium price of the good is below the ceiling. If the ceiling is set below the equilibrium level, however, then there is a deadweight loss created. Other problems come in the form of black markets, search time, and fees, which are added but not directly associated with the sale - for example a high charge for fittings could be added to a maxed out rental cost.

RELATED TERMS
  1. Law Of Supply

    A microeconomic law stating that, all other factors being equal, ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being ...
  3. Price Controls

    Government mandated minimum or maximum prices that can be charged ...
  4. Quantity Supplied

    A term used in economics to describe the amount of goods or services ...
  5. Ceiling

    The maximum level permissible in a financial transaction. Ceiling ...
  6. Floor

    The lowest acceptable limit as restricted by controlling parties. ...
RELATED FAQS
  1. For what sorts of purposes can the funds in a share premium account be disbursed?

    Deadweight loss is the cost of market inefficiencies due to government regulations that prohibit natural market equilibrium. ... Read Full Answer >>
  2. What is the relationship between research and development and innovation?

    Although it's possible to achieve innovation without research and development and it's possible to conduct research and development ... Read Full Answer >>
  3. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
  4. How does neoclassical economics relate to neoliberalism?

    While it may be likely that many neoliberal thinkers endorse the use of (or even emphasize) neoclassical economics, the two ... Read Full Answer >>
  5. What are common concepts and techniques of managerial accounting?

    The common concepts and techniques of managerial accounting are all the concepts and techniques that surround planning and ... Read Full Answer >>
  6. How is abatement cost accounted for on financial statements?

    Abatement costs are accounted for on a company's financial statements through increases in either cost of goods sold or operational ... Read Full Answer >>
Related Articles
  1. Economics

    A Practical Look At Microeconomics

    Learn how individual decision-making turns the gears of our economy.
  2. Personal Finance

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  3. Economics

    Understanding Limited Liability

    Limited liability is a legal concept that protects equity owners from personal losses due to their ownership interest in the company.
  4. Economics

    Calculating Income Elasticity of Demand

    Income elasticity of demand is a measure of how consumer demand changes when income changes.
  5. Economics

    Understanding Implicit Costs

    An implicit cost is any cost associated with not taking a certain action.
  6. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  7. Economics

    Understanding Diseconomies of Scale

    Diseconomies of scale is the point where a business no longer experiences decreasing costs per unit of output.
  8. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  9. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.
  10. Economics

    What Does Capital Intensive Mean?

    Capital intensive refers to a business or industry that requires a substantial amount of money or financial resources to engage in its specific business.

You May Also Like

Hot Definitions
  1. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  2. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  3. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  4. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  5. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  6. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!