In a competitive market, demand for and supply of a good or service determine the equilibrium price.
The law of demand
Markets have two agents: buyers and sellers. Demand represents the buyers in a market. Demand is a description of all quantities of a good or service that a buyer would be willing to purchase at all prices.
According to the law of demand, this relationship...
Key points
Price ceilings prevent a price from rising above a certain level.
When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.
Price floors prevent a price from falling below a certain level.
When a price floor is set above the equilibrium price, quantity...
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