A price ceiling only matters when it is set below the market price: then it stops the price rising.
Why governments set one
Keep essentials affordable
Bread, rice or fuel stay cheap, so poorer households can buy them.
More people use a merit good
A low price for medicine or school meals raises how many use them.
Protect buyers when prices jump
A cap on rents or energy bills shields households during fast inflation.
The points to remember
- Below the equilibrium price: the ceiling binds and causes a shortage.
- Above it: the market price is already lower, so the ceiling does nothing.
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Watch what a ceiling does to the market.
Our example (made-up numbers)
| Free market | With a ceiling of €4 | |
|---|---|---|
| Price | €6 | €4 |
| Buyers want | 40 | 60 |
| Sellers offer | 40 | 20 |
| Shortage | 0 | 40 |
Animated graph
Watch the graph build step by step in study mode.
Remember it as: A ceiling below the market price: cheap, but not enough to go round.
Learn what examiners really want
See exactly what to write to score full marks. Our AI shows you model answers and the key phrases examiners look for.
A ceiling helps some people and hurts others.
Who gains, who loses
Buyers who get the good
They pay €4 instead of €6.
Buyers who miss out
They queue, go without or pay a black-market price.
Producers
A lower price and fewer sales; some cut quality or quit.
Government
It must ration, police black markets or supply the good itself.
Animated graph
Watch the graph build step by step in study mode.
Paper 2 asked this in May 2022, for 4 marks.
Using a demand and supply diagram, explain how a rise in the maximum price of maize (still below the equilibrium price) would change the welfare loss associated with the maximum price.
Model answer plan
See the answer broken into clear points, with guidance on how each point earns marks.
Animated graph
Watch the graph build step by step in study mode.
What the diagram must show
- Axes P and Q; D and S; Pe and Qe.
- Pmax1 below Pe, then Pmax2 higher but still below Pe.
- The welfare loss shown at each ceiling: the second triangle smaller.
How the 4 marks are given
| Marks | What your answer needs |
|---|---|
| 3–4 | A correct diagram and a correct explanation |
| 1–2 | A correct diagram or a correct explanation, not both |
| 3 at most | A diagram with a wrong or missing label |