Question

What is maximum price ceiling? Explain its implications.

Answer 1

Maximum price ceiling is the legislated or government imposed maximum level of price that can be charged by the seller. Usually, the government fixes this maximum price much below the equilibrium price, in order to preserve the welfare of the poorer and vulnerable section of the society.

For example, the Government of India imposes price ceiling in the market of wheat, rice, sugar and other necessity goods.

Implications of Price Ceiling:
1. Excess demand- Due to artificially lowering the price, the demand becomes comparatively higher than the supply. This leads to the emergence of the problem of excess demand.
2. Enhances Welfare- The imposition of the price ceiling ensures the access of the necessity goods within the reach of the poor people. This safeguards and enhances the welfare of the poor and vulnerable sections of the society.
3. Fixed Quota- Each consumer gets a fixed quantity of good (as per the quota). The quantity often falls short of meeting the individual's requirements. This further leads to the problem of shortage and the consumer remains unsatisfied.