The definition of a price ceiling is a regulation that makes it illegal to charge a price higher than a specified level. This might make certain businesses lose money if the price ceiling was set too low. Another thought is that it might affect the cost of goods used to make a certain product if the product wasn't able to make enough money to make a profit off of it being sold. Imagine this hypothetical situation. ^_^
Your dresser has a ceiling set at 100 dollars. However, the cheapest supplies used to create the dresser are almost at 100 dollars. Therefore there isn't much dresser creation going on. This would make a pretty big demand on the dresser industry, but with no way for the companies to make a profit, they would not be able to make the dressers. Enter the black market. Because there is such a demand for dressers, people begin buying from other sources.
Answers & Comments
Verified answer
The definition of a price ceiling is a regulation that makes it illegal to charge a price higher than a specified level. This might make certain businesses lose money if the price ceiling was set too low. Another thought is that it might affect the cost of goods used to make a certain product if the product wasn't able to make enough money to make a profit off of it being sold. Imagine this hypothetical situation. ^_^
Your dresser has a ceiling set at 100 dollars. However, the cheapest supplies used to create the dresser are almost at 100 dollars. Therefore there isn't much dresser creation going on. This would make a pretty big demand on the dresser industry, but with no way for the companies to make a profit, they would not be able to make the dressers. Enter the black market. Because there is such a demand for dressers, people begin buying from other sources.
Hope this helps! ^_^
In some cases, once a ceiling is set it, in effect, becomes the floor. Everyone charges the maximum allowable price.
shortages of supply