A price ceiling will be binding only if it is set.
But what would happen if a government wanted to impose a maximum legal limit on the prices that could be charged for goods and services?
This article explores how such policies have been applied in other countries.
Why such policies may not work as intended?
Keyword: price ceilings
The idea of a price ceiling suggests that prices can be regulated and kept within the desired range.
For example, if milk is $50 per gallon in New York City, then a government may impose limits on how high it’s sold for.
It would make sense to think that this type of regulation will work as intended .
People will stop buying at these higher prices once they’ve reached their limit but this does not seem to happen.
In fact, when people are unable to buy more than one or two gallons of milk at a time without breaking their budget.
They might just purchase fewer dairy products such as eggs instead-which could cause an egg shortage in NYC!
The pricing system only works so long as there are enough supplies available.