Can someone define price ceilings and price floors (in economics)? I searched online and some people were saying a price ceiling was a government imposed price set below the equilibrium price and a price floor was a price imposed above the equilibrium price. Other people were saying the opposite. Which one is correct?
The first is correct. A price ceiling prevents prices from rising to their equilibrium point. A price floor prevents them from falling to their equilibrium point. Both are interfering with market forces by the government to achieve some perceived higher good.
Price ceiling is the highest a price can go (duh!) so it must be below the equilibrium price. A price ceiling above the market determined price would do nothing becuase the price would be below it. A price floor is the opposite, it is set above equilibrium value. It would be useless if the floor was below market value.