to control prices, in ways that will often lead to undesirable consequences. Alternative policy tools can often

achieve the desired goals of price control laws, while avoiding at least some of their costs and tradeoffs.

Price Ceilings

Laws that governments enact to regulate prices are called price controls. Price controls come in two flavors. A

price ceiling keeps a price from rising above a certain level (the “ceiling”), while a price floor keeps a price

from falling below a given level (the “floor”). This section uses the demand and supply framework to analyze

price ceilings. The next section discusses price floors.

A price ceiling is a legal maximum price that one pays for some good or service. A government imposes price

ceilings in order to keep the price of some necessary good or service affordable. For example, in 2005 during

Hurricane Katrina, the price of bottled water increased above $5 per gallon. As a result, many people called for
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