Price ceiling and price floor are the two government limits set
to prevent firms from charging too high or too low prices.
Price ceiling is usually set below the equilibrium price level
to prevent firms from charging very high prices and hence to
protect the consumer's.
While price floor is usually set above the equilibrium price
level to prevent firms from charging very low prices.
While price ceilings create shortages within the market, price
floors create surplus within the market economy.
This is because, when prices are kept low due to a price
ceiling, the firms produce less, therefore demand exceeds supply
thereby creating shortages.
When prices are kept high due to a price floor, firms produce
too much while the demand falls as price rises due to a price
floor. Therefore supply exceeds demand thereby creating a market
surplus.