What is the purpose of a 'price ceiling'?

A price ceiling is an established maximum price that can be charged for a product, usually set by the government to protect consumers from excessively high prices. The primary intent of implementing a price ceiling is to ensure that essential goods and services remain affordable for people, especially during times of crisis or increased demand. For example, in the housing market, a rent control law may serve as a price ceiling to help keep housing available to lower-income families.

When a price ceiling is in place, if market forces would naturally push the price above this limit due to high demand or low supply, the price cannot exceed the ceiling. This can lead to an increase in demand but a decrease in the willingness of producers to supply the goods at the capped price, which might result in shortages.

Thus, the correct answer accurately reflects the primary role of a price ceiling in economic policy.