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Economics - efficiency - what is upper and lower bound? Therefore would a price ceiling be a upper or lower?


A price ceiling sets a limit on the price of a good or service. Regardless of demand, the price may not exceed a set limit (ceiling).

Assuming the ceiling is below the natural equilibrium, this will cause a shortage in the product supply. This is inefficient, as producers will not be able to maximize their profits or meet consumer demand.

If the ceiling is above the equilibrium, then it is essentially pointless, as cost would not reach that level anyway. This means the market could be efficient, but that efficiency would have nothing to do with the price ceiling.

In essence, a price ceiling is only ever going to be inefficient or irrelevant. A price ceiling will not be an efficient economic practice.

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