Question

What is meant by price ceiling? Explain its implications.

Answer 1

The government-imposed upper limit on the price of a good or service is called price ceiling. Price ceiling is generally imposed on necessary items like wheat, rice, kerosene, sugar and it is fixed below the market-determined price since at the market-determined price some section of the population will not be able to afford these goods.

In general, price ceiling accompanied by rationing of the goods may have the following adverse consequences on the consumers:
(a) Each consumer has to stand in long queues to buy the good from ration shops.
(b) Since all consumers will not be satisfied by the quantity of the goods that they get from the fair price shop, some of them will be willing to pay higher price for it. This may result in the creation of black market.