What purpose do price ceilings and price floors serve in an economy?

Price ceilings and price floors are tools used by governments to regulate the economy and maintain fairness among consumers and producers. A price ceiling is a maximum price set for a good or service, which aims to ensure that essential products remain affordable for consumers. By preventing prices from rising too high, price ceilings help protect low-income households from being priced out of the market for necessary goods, such as food and housing.

On the other hand, a price floor is a minimum price established for a good or service, which is often intended to ensure that producers receive a fair income for their products. For example, minimum wage laws serve as a price floor for labor, ensuring workers earn at least a certain amount for their efforts. This can stimulate the economy by increasing consumer spending as workers have more disposable income.

By keeping prices within certain bounds, these mechanisms help stabilize the economy by preventing extreme fluctuations in the prices of essential goods and services, thus promoting equitable access for consumers and sustainable income for producers.