What is a price ceiling?

A price ceiling refers to a maximum legal price established by the government for a particular good or service. The primary aim of a price ceiling is to protect consumers from high prices, especially in essential markets such as housing or food. By setting this limit, the government seeks to ensure that these goods remain accessible and affordable to the general population.

When the price ceiling is set below the equilibrium price, where supply equals demand, it can lead to shortages because producers may not be willing to supply enough of the good or service at the lower price point. This situation can result in negative consequences such as queues, black markets, or a decrease in the quality of goods.

In contrast, a minimum legal price (the first option) refers to a price floor, which prevents prices from falling below a certain level, typically used to ensure fair compensation for producers. The other options refer to different concepts not related to government-imposed pricing constraints. Thus, recognizing price ceilings as government-imposed maximum prices helps to understand their impact on market dynamics and consumer access.