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Price Ceilings, Price Floors, and Black Markets definitions

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  • Price Ceiling
    A government-set legal maximum for a good or service, only impactful when below market equilibrium, often causing shortages.
  • Price Floor
    A government-set legal minimum for a good or service, only impactful when above market equilibrium, often causing surpluses.
  • Equilibrium Price
    The market price where quantity supplied equals quantity demanded, with no pressure for change.
  • Shortage
    A situation where quantity demanded exceeds quantity supplied, often resulting from a binding price ceiling.
  • Surplus
    A situation where quantity supplied exceeds quantity demanded, often resulting from a binding price floor.
  • Rent Control
    A common example of a price ceiling, where government limits the maximum rent landlords can charge.
  • Minimum Wage
    A typical example of a price floor, setting the lowest legal hourly pay for labor.
  • Rationing Coupon
    A government-issued permit allowing purchase of a limited quantity of a good at a controlled price during shortages.
  • Black Market
    An illegal marketplace where goods or services are traded to bypass government price or quantity controls.
  • Quantity Supplied
    The amount of a good producers are willing to sell at a specific price, affected by price controls.
  • Quantity Demanded
    The amount of a good consumers are willing to buy at a specific price, influenced by price regulations.
  • Ineffective Price Ceiling
    A maximum price set above equilibrium, having no impact as market transactions continue at equilibrium.
  • Ineffective Price Floor
    A minimum price set below equilibrium, having no effect as the market operates at equilibrium.
  • Effective Price Ceiling
    A maximum price set below equilibrium, causing shortages as demand exceeds supply.
  • Effective Price Floor
    A minimum price set above equilibrium, causing surpluses as supply exceeds demand.