A price ceiling is a legal maximum price that can be charged for a good or service, set by a government or regulatory body. The purpose of a price ceiling is typically to protect consumers from price gouging or to ensure that certain goods or services are affordable for all.
For example, if the government sets a price ceiling on rent, landlords may not be allowed to charge more than a certain amount per month for their properties.
A price floor, on the other hand, is a legal minimum price that can be charged for a good or service. The purpose of a price floor is typically to ensure that producers are able to earn a minimum level of profit, or to maintain a certain standard of quality.
For example, if the government sets a price floor on the minimum wage, employers may not be allowed to pay their workers less than a certain amount per hour.
Both price ceilings and price floors can have unintended consequences. Price ceilings can lead to shortages of goods or services, as suppliers are no longer able to make a profit at the capped price. Price floors can lead to surpluses, as suppliers produce more than what consumers are willing to buy at the higher minimum price.