Price Ceiling

Price ceiling is a government-imposed price limit or control on how much the price of product can be charged. With price ceiling, it is illegal to increase a products price higher than its maximum level. Price ceiling is to protect customers from high prices. 

Example Graph

For example, 
Price of a bag of 10kg rice is RM25. If the market equilibrium price rises to RM35, and the government puts a price ceiling of RM40 on it. It will not be effective because it is not protecting people from high prices. Setting a price ceiling means lowering the price below equilibrium such as RM30 to protect consumers.

Misuse of price ceiling can occur if the government thinks the price is too high but the truth is the supply is actually low. 

Example Graph

For example,
Rent control after World War 2. Soldiers returned and started families. They weren't able to keep up with the housing rental. So the government gave a price control, which caused the increase in quantity demand for houses and quantity supplied to decrease. Which means houses were taken as soon as possible and late comers had none.

Price ceiling can create problems and shortage if it is not rationed properly.

Reference:

http://en.wikipedia.org/wiki/Price_ceiling
http://usatoday30.usatoday.com/money/industries/energy/2011-06-06-south-carolina-gas-cap_n.htm?sms_ss=gmail&at_xt=4ded7d7524bc23cf%2C0
http://www.washingtontimes.com/news/2008/jun/12/federal-officials-predict-gas-price-ceiling-at-415/?page=all
http://www.web-books.com/eLibrary/NC/B0/B59/027MB59.html
http://www2.palomar.edu/users/llee/101Chapter08.pdf
http://economics.fundamentalfinance.com/price-ceiling.php