Price Ceilings

Imagine that merch season has rolled around for your Greek Life chapter. Everyone's wanting to secure their chapter hoodie and rep their letters on campus!

You are astonished to find out that the price this year is $50, and as a senior, that is the most you’ve ever had to pay for merch in years. You and your brothers/sisters decide to petition to set the price no higher than $40, and the executive board agrees.

This situation embodies a price control!

A price control is an attempt to set, or manipulate, prices through government regulations on the market.

The two types of price controls we'll work with are price floors and price ceilings. Why is this price control a price ceiling?

Price ceiling explained

In this situation, the new price of $40 for the hoodie is a price ceiling (a.k.a. the highest price a company can charge your fraternity/sorority).

A price ceiling creates a legally established maximum price for a good or service imposed when the market price is deemed too high. (Ex: inflation in a given market, unfairly high prices, etc.) 

You ask around and find out that the equilibrium price for hoodies among the chapter is $50...

...but you’ve argued for a ceiling of $40.

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