Question

What is maximum price ceiling ? Explain it's implications.

Answer 1

Hello Friends,

MaximumPrice sellling is the maximum price of a good which sellers can expect from buyers. This price is fixed by the government and is lower than the equilibrium market price of a good . Hence, the price selling leads to excess of demand and contract of supply.

Effects of price selling:-

i. It enables the availability of basic goods at reasonable prices to the poor.
This enables to increase the welfare of the people.

ii. When there is a fall in the price level, the demand for a good increases more than the
supply of the good. Hence, it creates an excess demand for the good.

iii. A consumer receives only a limited quantity of goods because the fixed quota system
is followed. So, the consumer would not be able to satisfy his/her needs.

iv. Goods which are available at ration shops are mostly of a low quality.

v. As the consumer demands are not satisfied, they are willing to pay a high price for satisfying their demand in the market. This results in black-marketing which reduces the actual availability of goods in the market.