Price Ceiling & Price Floor

Price Ceiling of Sugar

A price ceiling is set below equilibrium price

 The price of sugar must be set under the price ceiling which means government has set a regulation that the price of sugar is not allowed to rise above a certain level. As the original market price of sugar is too high and this will cause poor people cannot afford to buy sugar. So, government has to control the charges that sellers pass to consumers to protect consumers.

For instance, government had set the price ceiling of sugar as RM2.84 per kg. Sellers are prescribed that they can charge consumers at the price between RM2.50 to RM2.84 per kg, but cannot charge above RM2.84 per kg.  

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Price Floor of Wheat

A price floor is a minimum allowable price set above the equilibrium price.

The price of wheat must be set above price floor as government found that consumers able to purchase wheat is less than producers offer it. If the price of wheat is set at equilibrium price, producers will not gain profit and will lose. Thus, government sets price floor is to help producers gain profit and protect them.

Written By

Jescy Seah Jec Xi