This is an excerpt from my article on Macroeconomic Calculations.
If you get confused as to where you draw the line for a price floor or ceiling and whether its binding or unbinding then here is a good way to remember them, refer to the picture below. For an unbinding price ceiling and floor, picture a house with a floor and a ceiling, now lay the supply and demand graph over it. The unbinding price floor is below the equilibrium as you would assume the floor to be on the floor. The unbinding price ceiling is above equilibrium as you would assume the ceiling to be on the ceiling. For a binding price floor or ceiling, picture them as the opposite, picture a house with a floor and a ceiling, now the lay the supply and demand graph over it. The binding price floor is not below equilibrium as you would assume it is above, so the opposite. The binding price ceiling is not above equilibrium as you would assume it is below, so the opposite.
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Copyright © 2016 Zoë-Marie Beesley
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