Define Price Floor. What is the common purpose of fixation of floor price by the government ? Explain any one likely consequence of this nature of intervention by the government.
or
Define Price Ceiling. What is the common purpose for the price ceiling imposed by the government? Explain any one likely consequence of this nature of intervention by the government in the price determination process.
Define Price Floor. What is the common purpose of fixation of floor price by the government ? Explain any one likely consequence of this nature of intervention by the government.
or
Define Price Ceiling. What is the common purpose for the price ceiling imposed by the government? Explain any one likely consequence of this nature of intervention by the government in the price determination process.
PRICE FLOOR
A price floor is the lowest legal price of a commodity at which it can be sold, fixed by the goverment.Price floors are used by the government to prevent prices from being too low.
The main reason for imposing the price floor policy is the welfare of the producers / farmers.
Eg the minimum wages, minimum support price
Consequence :
Buffer Stock : In order to maintain the minimum support price, the government may have to build buffer stocks to enable producers to dispose of their surplus stocks. The goverment purchases the surplus stocks available with the farmers/ producers; these stocks are released in case the production of the supported commodity suffers.
OR
PRICE CEILING
Price ceiling means the maximum limit that the government imposes on the price of a commodity. Price ceilings are used by the government to prevent prices from being too high.
The main reason for imposing price ceilings is to protect the interests of the consumers in situations in which they are not able to afford needed commodities. For example, during the recent rise in the prices of pulses.
Consequence:
Shortages of the commodity and Rationing : In case of price ceiling the quantity actually supplied in the market will shrink; as a result, a large chunk of consumer's demand will go unsatisfied. To deal with such a situation the goverment may resort to rationing of the commodity
PRICE FLOOR
A price floor is the lowest legal price of a commodity at which it can be sold, fixed by the goverment.Price floors are used by the government to prevent prices from being too low.
The main reason for imposing the price floor policy is the welfare of the producers / farmers.
Eg the minimum wages, minimum support price
Consequence :
Buffer Stock : In order to maintain the minimum support price, the government may have to build buffer stocks to enable producers to dispose of their surplus stocks. The goverment purchases the surplus stocks available with the farmers/ producers; these stocks are released in case the production of the supported commodity suffers.
OR
PRICE CEILING
Price ceiling means the maximum limit that the government imposes on the price of a commodity. Price ceilings are used by the government to prevent prices from being too high.
The main reason for imposing price ceilings is to protect the interests of the consumers in situations in which they are not able to afford needed commodities. For example, during the recent rise in the prices of pulses.
Consequence:
Shortages of the commodity and Rationing : In case of price ceiling the quantity actually supplied in the market will shrink; as a result, a large chunk of consumer's demand will go unsatisfied. To deal with such a situation the goverment may resort to rationing of the commodity
