3.1.3—Price controls

A maximum price set below equilibrium is a price ceiling that can create excess demand; a minimum price set above equilibrium is a price floor that can create excess supply.

The effect depends on whether the control is binding. A non-binding ceiling above equilibrium or floor below it leaves the market outcome unchanged; enforcement and allocation mechanisms determine who gains access.

A binding rent ceiling may reduce the price paid by some tenants but create a shortage and non-price allocation; an agricultural support price can create unsold surplus.

A legal price is not automatically binding, and a price ceiling does not guarantee every willing buyer can obtain the good.