What is a price ceiling?

A price ceiling is defined as a maximum price set by the government for a particular good or service. This regulatory measure is implemented to protect consumers by ensuring that prices do not rise above a certain level, making essential goods more affordable, especially in times of shortage or crisis. For example, during a housing crisis, a government might impose rent control to keep housing affordable for lower-income residents.

Market dynamics play a crucial role in the effectiveness of a price ceiling. If the ceiling is set below the equilibrium price, it can lead to shortages as the quantity demanded exceeds the quantity supplied. However, this scenario aims to support consumers by ensuring access to necessities even when market prices may otherwise increase.

In contrast, the other options describe different economic mechanisms: a minimum price set by the government describes a price floor, a tax levied on goods refers to government-imposed taxes affecting pricing, and a price determined by market forces indicates a scenario where supply and demand dictate the price without government intervention.