What is a price ceiling?

A price ceiling is defined as a maximum price set by the government for a particular good or service. This regulatory measure is implemented to protect consumers from excessively high prices during times of high demand or limited supply. By capping prices, the government aims to make essential goods more affordable, particularly in markets where price fluctuations could lead to significant hardship for consumers.

For instance, during a natural disaster, a government might impose a price ceiling on essential items like food and water to prevent price gouging. While this can help consumers access necessary products, it may also result in shortages, as suppliers might be disincentivized to produce or sell the good at the lower price point. This illustrates the concept that while price ceilings intended to protect consumers, they can sometimes lead to unintended market consequences.

The other options do not accurately represent the definition of a price ceiling; a minimum price established by the government represents a price floor, a pricing strategy by firms does not relate to government regulation, and limits on production costs pertain to cost management rather than price control mechanisms in a market.