Price ceiling

A price ceiling is a legal maximum price sellers may charge for a good or service. When set below the market-clearing price, it can create excess demand and shortages.

Supply and demand: A model of how prices and quantities emerge from buyers’ willingness to purchase and sellers’ willingness to provide goods. It shows why a maximum below equilibrium tends to leave more buyers seeking the good than sellers provide.
Rent control: Government rules that limit rents landlords may charge or how quickly rents may increase. It is a prominent form of price ceiling applied to housing.
Price floor: A legal minimum price sellers may receive for a good, service, or factor of production. It sets a lower bound, whereas a ceiling sets an upper bound.
Consumer surplus: The difference between what buyers are willing to pay and what they actually pay. A lower controlled price can benefit buyers who obtain the good, while scarcity excludes others.
Diocletian's Edict on Maximum Prices: A Roman imperial edict issued in 301 CE that set maximum prices for many goods and services. It is a major early example of a government-wide attempt to cap prices.
Market equilibrium: A market condition in which the quantity buyers want equals the quantity sellers offer at a given price. The ceiling’s effects depend on whether its legal maximum lies below this price.
Gasoline price controls: Government limits on the prices charged for gasoline, sometimes imposed during shortages or emergencies. They illustrate how a ceiling on an essential, supply-constrained good can lead to queues and rationing.
Subsidy: A government payment or tax reduction that lowers costs or increases returns for selected activities. A subsidy can support affordability without legally forbidding prices above a fixed maximum.
Producer surplus: The difference between the price sellers receive and the minimum they would accept for supplying a good. A binding ceiling can reduce sellers’ returns and their incentive to supply or maintain the good.
World War II price controls in the United States: Federal limits on prices and rents imposed in the United States during World War II to restrain inflation and allocate scarce goods. This case shows ceilings used alongside rationing during wartime shortages.

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