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 1 asked this in November 2024, as part (b) for 15 marks. The specimen paper and May 2025 asked similar 15-mark questions; May 2026 asked why governments set a ceiling, for 10 (section 1).
Using real-world examples, evaluate the view that the fixing of maximum prices by governments will always have negative effects on markets and stakeholders.
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 crossing at Pe and Qe.
- Pmax drawn below Pe, with Qs and Qd read off it.
- The shortage (Qd − Qs) labelled.
How the 15 marks are given
| Marks | What your answer needs |
|---|---|
| 13–15 | Theory fully explained, terms right all the way through, balanced evaluation, real examples fully developed to support the argument |
| 10–12 | Theory explained, terms mostly right, evaluation mostly balanced, real examples developed |
| 7–9 | Theory partly explained, some evaluation but one-sided, examples partly developed |
| 4–6 | Theory only described, evaluation superficial, examples only named |
| 1–3 | Theory stated but not relevant, no evaluation |