Difference between Price Ceiling and Price Floor

The amount supplied and the quantity demanded are equal at the equilibrium price in a market that is functioning freely. However, government interference in markets is common. When the equilibrium price so reached is either too high or too low(unprofitable) for the producers of the commodity, the government may need to intervene in the process of fixing prices.

The two types of government interventions are:

Price Ceiling

When the equilibrium price established by the free play of demand and supply is too high for the poor, the government plays a significant role in regulating the prices of essential commodities(wheat, sugar, kerosene, etc.). Price Ceiling refers to fixing the maximum price of a commodity at a level lower than the equilibrium price. Simply put, price ceilings are higher limits set by the government on the price of a product.

Price Floor or Minimum Support Price (MSP)

Price Floor refers to the minimum price (above the equilibrium price), fixed by the government, which the producers must be paid for their produce. The establishment of a lower limit on the price that may be charged for a specific commodity or service is referred to as setting a price floor or minimum price ceiling. Government sets a price (known as the Price Floor) that is higher than the equilibrium price when it believes that the price determined by supply and demand is not fair from the perspective of the producers.

Difference between Price Ceiling and Price Floor

Basis	Price Ceiling	Price Floor
Meaning	Price Ceiling refers to fixing the maximum price of a commodity at a level lower than the equilibrium price.	Price Floor refers to the minimum price (above the equilibrium price), fixed by the government, which the producers must be paid for their produce.
Objective	In general, price ceiling is imposed on essential items so that they are affordable for common people.	In general, price floor is imposed to protect the interests of producers of a certain category.
Relation with Equilibrium Price	Price Ceiling is fixed at a level which is lower than the equilibrium price.	Price Floor is fixed at a level above the equilibrium price.
Impact	Price Ceiling results in excess demand. It means that through price ceiling, the government creates a shortage in the market, which may result in black marketing.	Price Floor results in excess supply. It means that through price floor, the government creates a surplus in the market, which is either sold by the producers at a price below the minimum price or bought by them (government).

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