A price floor is the minimum price, higher than the equilibrium price, that a seller can charge for a good or service. Minimum wage is an example of a price floor. Businesses cannot legally pay a worker less than the minimum wage. With a price floor, the market is not in equilibrium: quantity supplied is greater than quantity demanded. Employers pay more for labor than they would at the equilibrium level. This causes a surplus. A surplus of workers implies that there are people who are willing and able to work who cannot find jobs.
A price ceiling is the maximum price, below the equilibrium price, that a seller can charge for a good or service. Rent control is an example of a price ceiling. In this case, rent cannot exceed the maximum price set by the government. Lower rent makes it possible for more people to afford the basic need of shelter particularly in more expensive cities. With a price ceiling, again the market is not in equilibrium: quantity demanded is greater than quantity supplied. Producers earn less revenue than they would at the equilibrium level and supply fewer goods than consumers demand. This causes a shortage.Price floors and ceilings also create deadweight loss, or loss to the economy or less economic activity than there should be caused by resources being used inefficiently. Equilibrium prices and quantities are determined by the intersection of supply and demand. When supply and demand are not in equilibrium, deadweight loss occurs. Although the reasons for putting price ceilings and price floors in place differ, the resulting inefficiency in both cases is caused by the government imposing a price that is different from the equilibrium price.