try to describe the basic concept of Price Ceilings & Price Floors.

1. Welcome To My
Presentation
PREPARED FOR
ASSISTANT PROFESSOR MD. SHARIFUL ISLAM
PREPARED BY
MD. SHAMS AKHTER
ID NO:16012026

2. Topic
Price Ceilings
&
Price Floors
2

3. Price Controls
PRICE CONTROLS MEASURES :
Price Ceiling: govt. impose legal maximum price
on goods is called Price Ceilings. Example:
rent control.
Price Floor: govt. impose legal minimum price on
goods is called price floors. Example:
minimum wage.

4. Market Equilibrium Situation
EQUILIBRIUM WITHOUT PRICE
CONTROLS
P
QD
SRental price of
apartments
$800
300
Quantity of
apartments

5. Price Ceilings(That is Binding)
• THE EQUILIBRIUM
PRICE ($800) IS
ABOVE THE CEILING
AND THEREFORE
ILLEGAL. THE
CEILING IS A
BINDING
CONSTRAINT
ON THE PRICE,
CAUSES A
SHORTAGE.
P
Q
D
S
$800
Price
Ceiling
$500
250 400
Shortage

6. Price Ceilings (That Is Binding)
• IN THE LONG
RUN, SUPPLY AND
DEMAND ARE
MORE
PRICE-ELASTIC.
THEREFORE, THE
SHORTAGE WILL
BE LARGER.
P
Q
D
S
$800
150
Price
Ceiling
$500
450
Shortage

7. Price Ceilings ( That Is Not Binding)
• PRICE CEILING
ABOVE THE
EQUILIBRIUM
PRICE IS NOT
BINDING –HAS
NO EFFECT ON
THE MARKET
OUTCOME.
P
Q
D
S
$800
300
Price
Ceiling
$1000

8. Price Floors (That is Binding)
• THE EQUILIBRIUM
WAGE ($4) IS BELOW
THE FLOOR AND
THEREFORE
ILLEGAL. THE FLOOR
IS A BINDING
CONSTRAINT
ON THE WAGE,
CAUSES A
SURPLUS(I.E.,
UNEMPLOYMENT).
W
L
D
S
$4
Price
Floor
$5
400 550
Labor
Surplus

9. The Minimum Wage
• MINIMUM
WAGE LAWS DO
NOT AFFECT
HIGHLY
SKILLED
WORKERS.
OFTEN, THEY
AFFECT TEEN
WORKERS.
W
L
D
S
$4
Minimum
Wage$5
400 550
Unemployment

10. Price Floors Affect (That Is Not Binding)
• A PRICE FLOOR
BELOW THE
EQUILIBRIUM PRICE IS
NOT BINDING – HAS
NO EFFECT ON THE
MARKET OUTCOME.
W
L
D
S
$4
500
Price
floor
$3

11. Evaluation Of Price Ceilings
 Shortage
 Ration: Personal Biasness , Friends, Relatives or ethical
Groups.
 Discrimination
11

12. Evaluation Of Price Floor
 Surplus
 Unemployment
 Ultimate loss for Labour
12