Explain the concept of Maximum Price Legislation with the help of a diagram.
In order to protect
the interest of the consumers the government imposes price ceiling or maximum
price above which
no one will sell the commodity. This is called 'price ceiling' or 'maximum
price legislation'. Price
Legislation. Whenever the
forces of demand and supply are allowed to fix market prices of
commodities in a competitive market, some of the prices may be
unfairly high to buyers or unfairly low to sellers. In such instances, the
government may attempt to regulate or limit prices through legislation. Definition
– A maximum price occurs when a government sets a legal limit on the price of a good or
service – with the aim of reducing prices below the market equilibrium price. ... If the maximum
price is set below
the equilibrium price, it will cause a shortage – demand will be greater than
supply. Price ceiling (maximum price) – the highest possible price that
producers are allowed to charge consumers for the good/service
produced/provided set by the government. It must be set below the equilibrium price to have any
effect.
In order to protect the interest of the consumers the government imposes price ceiling or maximum price above which no one will sell the commodity. This is called 'price ceiling' or 'maximum price legislation'. Price Legislation. Whenever the forces of demand and supply are allowed to fix market prices of commodities in a competitive market, some of the prices may be unfairly high to buyers or unfairly low to sellers. In such instances, the government may attempt to regulate or limit prices through legislation. Definition – A maximum price occurs when a government sets a legal limit on the price of a good or service – with the aim of reducing prices below the market equilibrium price. ... If the maximum price is set below the equilibrium price, it will cause a shortage – demand will be greater than supply. Price ceiling (maximum price) – the highest possible price that producers are allowed to charge consumers for the good/service produced/provided set by the government. It must be set below the equilibrium price to have any effect.
