Only in economics are floors above ceilings!

by on November 18, 2009 at 6:50 am in Economics, Education | Permalink

Only in economics are floors above ceilings!  It might be better to say "a minimum allowed price above the market price" and "a maximum allowed price below the market price," although that is a bit of a mouthful.  I find that the floors and ceilings language does work, however, if the instructor explicitly points out the oddity of floors above ceilings!  In that case, students find the distinction memorable.

Floors and Ceilings

1 Carsten Valgreen November 18, 2009 at 6:56 am

How about in any house with more than one floor…

2 Bill November 18, 2009 at 8:32 am

If you are in the basement, the ceiling is a floor above you; and the attic floor prevents the roof from falling on you.

3 josh November 18, 2009 at 8:57 am

When it’s ajar!

4 rvman November 18, 2009 at 9:45 am

Strictly speaking, price floors are not above price ceilings. Or more precisely, if for a given good, a price floor and a price ceiling both exist, then the ceiling must be at or above the floor (and the price is bracketed into a finite range). If the ceiling were below the floor as shown in the graphic, there would exist no legal price for said good. This is one of those concepts for which spending the time and paper to put the concept on multiple graphs for teaching really helps avoid confusion.

5 Donald A. Coffin November 18, 2009 at 12:16 pm

“One man’s ceiling is another man’s floor…”
Thus spake Paul Simon

6 Tom Purves November 18, 2009 at 12:47 pm

And only economists would think of putting price on the Y axis and Quantity on the X instead of the other way around.

7 AndrewUK November 18, 2009 at 2:28 pm

As an economics teacher here in the UK at I guess what is high school level(16-18 year olds) I totally agree with rvman and Aaron. I understand what you’re trying to illustrate, but this graph would confuse the hell out of the students at the age I teach. Far better multiple graphs. My students have no problem with a “price room” for Aaron’s point 5!

8 Jay November 18, 2009 at 6:20 pm

“Only in economics are floors above ceilings!”

I’m not sure I’d attribute this to economics. A normal house has a floor under a ceiling. This would lead us to putting floors below market equilibrium and ceilings above market equilibrium. I blame politicians, who repeatedly think they can better “society” (aka their cronies) by putting floors above market equilibrium and ceilings below market equilibrium, for this possible outcome.

9 Bernard Yomtov November 18, 2009 at 11:14 pm

when it comes to stocks and ETFs, we should not forget to check the timing signals to figure out when to get in (floor) and when to get out (ceiling).

Actually, we should forget to do this.

10 Xmas November 22, 2009 at 7:10 am

William,

I’m sure you are deliberately ignoring food shortages in Venezuela and the effect of excess US cotton production on the world market.

http://news.bbc.co.uk/2/hi/business/4599260.stm

http://www.pbs.org/now/shows/310/cotton-trade.html

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