What is a price ceiling?

A price ceiling is defined as a maximum price that can be legally charged for a good or service. This regulatory limit is often put in place by the government to protect consumers from conditions that could make necessities excessively expensive, particularly in markets where demand outstrips supply. When a price ceiling is applied, it ensures that prices do not rise above a certain level, which can help to maintain affordability for consumers.

For example, during times of crisis, such as natural disasters or economic emergencies, governments might impose a price ceiling on essential goods like food or fuel to prevent price gouging. However, while price ceilings are intended to make goods more accessible to consumers, they can also lead to shortages, as suppliers may be unwilling to provide enough product at the lower price point, reducing overall availability in the market.