3.2.4—Maximum and minimum prices

A maximum price below equilibrium is a binding ceiling that can create a shortage; a minimum price above equilibrium is a binding floor that can create a surplus.

If the legal bound does not cross equilibrium it is non-binding. Once binding, allocation may occur through queues, rationing, unsold stocks, government purchases or black markets.

A binding rent ceiling may increase demand for apartments while reducing supply; an agricultural floor may leave the government buying excess output.

Do not label a price control binding without comparing it with equilibrium, and do not assume the legal price alone determines who receives the good.