What is maximum price calling Explain its implications CBSE Class 12 Economics 2016

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What is maximum price calling? Explain its implications. - CBSE Class 12 Economics 2016

Appeared in CBSE economics class 12, 2016, Delhi, Set 1 paper


By:Aparna-Dasgupta

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Price ceiling 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 (OPe). Hence, the price ceiling leads to excess of demand and contract of supply.
Effects of price ceiling:
i. Price ceiling 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.

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