What to explore
Change parameters and watch the model adjust.
- Demand and supply intercepts and slopes
- Policy type and the controlled price level
Intermediate price theory
Price Ceilings and Price Floors
A competitive-market model for binding and non-binding price controls, including shortages, surpluses, and welfare effects.
Focus
Binding vs non-binding controls and market imbalance
Switch between ceilings and floors to see when the policy binds, how traded quantity changes, and where welfare losses come from.Interactive diagram
Price Controls
How to read this
A competitive market clears where demand meets supply — the price P* and quantity Q* at which the amount buyers want equals the amount sellers offer. A price control is a legal limit on that price: a ceiling caps it (rent control, say), a floor props it up (a minimum wage). The dashed line marks the controlled price P.
A control only bites when it sits on the wrong side of the equilibrium — a ceiling below P*, or a floor above it. When it binds, the two sides of the market stop agreeing, and the shorter side decides how much actually trades. The gap along the dashed line is the shortage (under a ceiling) or the surplus (under a floor).
Because fewer units change hands than at the competitive quantity, some gains from trade go unrealised — the shaded deadweight-loss triangle. Switch between ceiling and floor and slide P across the equilibrium to watch the policy flip between binding and harmless.
Microeconomic markets and power
Step 3 of 7
Core ideas
Interpret the mechanics before you chase the graphs.
- A binding price ceiling creates a shortage because quantity supplied becomes the short side of the market.
- A binding price floor creates a surplus because quantity demanded becomes the short side of the market.
- Even if the posted price changes, the number of trades can fall below the competitive benchmark.
Learning goals
What this model should help students internalize.
- Distinguish between binding and non-binding price controls.
- Compute shortages or surpluses under a ceiling or floor.
- Compare competitive and controlled welfare outcomes.
Prerequisites
Concepts to review before diving in.
- Competitive equilibrium
- Basic consumer and producer surplus ideas
Open the full interactive notebook (Python · loads on demand)
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