Price ceilings /max price

Question 1

what is a price ceiling?

Answer 1

A price ceiling is a government-imposed limit on the maximum price that can be charged for a good or service, usually set below the equilibrium price determined by the market.

Question 2

reason for price ceiling?

Answer 2

Price ceilings are often implemented to protect consumers from excessively high prices, particularly for essential goods and services.
-when the market price for essential goods and services becomes too unaffordable

Question 3

consequences of price ceiling?

Answer 3

• can lead to shortages in the market,
• quantity supplied at the lower price falls below the quantity demanded.
• causes rationing problems
• causes black market

Question 4

real-world example max price

Answer 4

For example, during the 1970s, the United States imposed price controls on gasoline, leading to widespread shortages and long queues at gas stations.
india placed a price ceiling on bare metal stents implemented feb 2017, used to be selling for 650 USD now sell for 100 USD

Question 5

consumer price ceiling impact

Answer 5

consumers who can obtain the good or service at the lower price will benefit from the price ceiling. However, those who are unable to access the good or service due to shortages may be worse off.

Question 6

producer price ceiling impact

Answer 6

sell less and receive less causing some producers to leave the market or produce less

Question 7

workers price ceiling impact

Answer 7

fewer products produced = fewer workers needed creating fewer job opportunities and workers will be fired.

Question 8

government price ceiling impact

Answer 8

no direct advantage for the government and achieves half the problem as half the people who manage to buy the product before it is out of stock will be happy

Question 9

government solutions for price ceiling?

Answer 9

-the government can grant subsidies encouraging firms to increase the supply
- produce the shortfall of goods themselves
- store products before setting price ceilings and release them when there is a shortage.

Question 10

why do black markets occur? price ceilings

Answer 10

because of the low price, there are many people still willing and able to purchase the product at the original price so black markets illegally sell the product at the higher prices.

Question 11

price ceiling GRAPH

Answer 11

consumer surplus = a + C
producer surplus = e
deadweight loss d + b