Question

Explain the meaning and implications of maximum price ceiling and minimum price ceiling.

Answer 1

When the government imposes upper limit of on the price of a good it is called maximum price ceiling. It is fixed below the equilibrium price.

Implication: It will lead to excess demand. This in turn may lead to black marketing of goods. When the govt imposes lower limit on the price of a good, it is called maximum price ceiling.

Implication: It leads to excess supply. This in turn may lead to illegal selling below the ceiling price as the producers are not able to sell what they desire to sell.