Binding Price Ceiling Graph. The government sets a limit on how low a price can be charged for a good or service. A price ceiling is a legal maximum price that one pays for some good or service.
An example of a price floor would be minimum wage. When price ceilings are set they are done in order to allow people who would otherwise be unable to purchase the relevant goods to be able to purchase them. They are generally used to increase prices such as wages but are only effective binding when placed above the market price.
This graph shows a price ceiling.
The net effect of the price floor in the above activity is that the price floor causes the area H to be transferred from consumer to producer surplus but also causes a deadweight loss of J K. Use the line segment to show a binding price floor on the first graph. Price floors are a common government policy to manipulate the market. The government sets a limit on how high a price can be charged for a good or service.
