What is meant by price ceiling ? Explain its implications.

ANSWER: Price ceiling is the maximum price the sellers are allowed to charge less than equilibrium market price. Government imposes such ceiling when it finds the demand for goods exceeds its supply to protect the interest of consumers.

Effects of price ceiling:

  • Price ceiling enables the availability of basic goods at reasonable prices to the poor. This enables to increase the welfare of people.
  • When there is fall in price, demand for good increases more than supply hence,creating excess demand.
  • Consumer receives only limited quantity of goods because fixed system is followed. Thus, consumer may not satisfy his wants.
  • Goods available at ration shops are often are low quality.

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