What is maximum price ceiling? Explain the implications.
What is maximum price ceiling? Explain the implications.
Maximum price ceiling refers to the maximum price of a commodity that the sellers can charge from buyers. Often, this price is fixed by the government to be lower than the equilibrium market price so that the commodity remains within the reach of the poorer sections of society. When, ceiling price is lower than the equilibrium price, there is likely to be excess demand in the market, leading to shortage of the commodity. This leads to black marketing. Briefly, maximum price ceiling may lead to (i) excess demand, and (ii) black marketing.
To prevent black marketing, the government may resort to rationing of the product, and ensure that the good is sold in limited quantities to specific persons.
Maximum price ceiling refers to the maximum price of a commodity that the sellers can charge from buyers. Often, this price is fixed by the government to be lower than the equilibrium market price so that the commodity remains within the reach of the poorer sections of society. When, ceiling price is lower than the equilibrium price, there is likely to be excess demand in the market, leading to shortage of the commodity. This leads to black marketing. Briefly, maximum price ceiling may lead to (i) excess demand, and (ii) black marketing.
To prevent black marketing, the government may resort to rationing of the product, and ensure that the good is sold in limited quantities to specific persons.
