Price Ceilings

Question 1

Food prices rapidly rising from 2008 to 2009

Answer 1

Enacted by governments to make food more affordable to low-income earners which resulted in:

• Lower prices of food thus, greater affordability,
• Food shortages due to Qd > Qs
• Non-price rationing methods like queues to deal w shortages
• Development of black / parallel markets
• Decreasing wages of farmers due to lower revenues
• Greater unemployment in the agricultural sector
• Misallocation of resources
• Greater popularity for the govt among customers that benefit (low-income househods)