Price Ceiling
Plain definition
A price ceiling is a legal maximum price set by the government — sellers may not charge above it. A ceiling only matters when it is set below the equilibrium price; otherwise it is non-binding and the market ignores it.
In economics
Binding price ceilings create shortages: quantity demanded rises while quantity supplied falls. The textbook cases are rent control and wartime price caps. The intended help to buyers comes with side effects — queues, black markets, quality decay, and misallocation — because the price can no longer ration the good.
Example
A city caps one-bedroom rents at 9,000 rupees when the market rent is 14,000. Tenants apply in droves, landlords offer fewer flats and skimp on maintenance, and newcomers pay illegal key money. The shortage the ceiling creates is worse than the high rent it replaced.
The key distinction is binding versus non-binding. A ceiling above equilibrium does nothing at all — the market price already sits below it. People often predict shortages from any ceiling, but only a ceiling below the equilibrium price (a binding ceiling) causes quantity demanded to exceed quantity supplied. Always locate the ceiling relative to equilibrium first.