explain how a maximum price will effect a market
Answers
Answer:
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 above the equilibrium price then it will have no effect.
In Microeconomics,maximum price is a price limit officially set or stipulated by the government,usually below the market equilibrium price in order to safeguard or protect consumer interests and economic welfare.
Explanation:
A maximum price is a stipulated price limit or bar officially set by the government and the sellers or producers cannot violate the maximum price set by the government and charge any other price to the consumers or buyers to sell any concerned product or service.Now,usually the maximum price limit is set below the market equilibrium price and at this price,the sellers or the producers in the market are not willing or reluctant to sell the adequate amount of any good or service in accordance with the market consumer demand.Therefore,there is a gap or difference created between the market supply and market demand of the particular good or service,which is commonly known as the market shortage or excess demand and many of the consumers or buyers will not be able to fulfill their required demand for the concerned good or service in the market.Hence,the government usually intervenes in the market in such situations and compensate for the market shortage or excess demand.