A price ceiling is a government-mandated maximum price above which legal trades cannot be made.
A price ceiling is a cap placed on the amount that can be charged for a good, service, or commodity by the government or another organization. The stated purpose of price caps is to shield customers from circumstances that would make items too expensive.
In New York City, for instance, officials establish price caps, or maximum rent rates, on each housing unit based on its maintenance and running costs. Until they reach that ceiling, the landlord may raise rent by 7.5% every two years to meet costs.
A price can't increase above a specific point because to price ceilings. When a price ceiling is set below the equilibrium price, supply will exceed demand, leading to shortages or excess demand. Prices are protected from falling below predetermined levels by price floors.
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