Explain the effect of a ‘price ceiling’.
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Answer: The direct effect of a price ceiling may be termed as black marketing. It is a state, where the product under the government’s authority is illegally sold at higher rates than the price fixed by the government. It might be possible when a buyer is willing to pay in higher rates for the product than not to buy.
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Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.
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