Price Ceiling: Advantages And Disadvantages Of Price Limitations

However, when the equilibrium price is beyond the expectation of a fair market value, for reasons of political or social concerns governments will intervene in the market and establish limits on such things as wages, apartment rents, electricity, or agricultural commodities. Government uses price ceilings and price floors to keep prices below or above market equilibrium. (Stone, 2012, page 68)

The legal minimum and maximum prices for goods and services are implemented by governments, in an effort to be able to manage the economy by direct intervention. Price ceilings and price floors are two types of price controls. The legal maximum of price for a good or service is a price ceiling and the legal minimum price of good or service is the price floor. The government may impose both a price ceiling and a price floor but typically only selects one for a specific good or service. Prices are formed by a free market when there is a balance between supply and demand of the good or service. When the legal price is different than that of the market price it will create either an excess in supply or an excess in demand. When a price ceiling is imposed it will create shortages, while having no effect on the quantity supplied. Shortages of goods and services cause consumers to compete robustly over the restricted supply. The shortages arrive from suppliers limiting the supply of goods and services due to the price ceiling, not allowing them to make a profit. The opposite holds true with price floors. Having a price floor creates an excess of goods and services and that allows suppliers to be more agreeable to supply. When price ceilings or price floors are implemented, this can lead to the creation of black markets and inefficient allocation to

A price ceiling set below the equilibrium price means that the quantity supplied ____ the quantity demanded so that a ____ exists.

market, there is price competition. This can lead to price wars and, therefore, lower prices for

This is because other dealers in the market will get an opportunity to sell their products in the market. Customers can get products locally with the change. Some suppliers can still get a way of working around the pricing issue to increase their sales.

As a consumer, we all get frustrated when we think a listed price is “too high” whether it is a necessity, and we have to buy it, or we just really want it. Some of the largest complaints by consumers today are directed towards the cost of goods. Marketing research has shown us that the costs of some items are being intentionally raised based on aspects of the individual who is making the purchase. The manipulation of prices can be broken down into three main issues: price fixing, price gouging, and price discrimination. Are there any positive or beneficial reasons to do this? Yes and no, the following paragraphs provide information about each practice individually.

A price ceiling is a government-levied maximum rate for a product or good. When a price ceiling inflicted by the government is more than retail equilibrium price, the price ceiling has no effect on the market or economy. This is because it does not obstruct supply, nor does it boost the demand. A different effect transpires if the government imposes a price ceiling below the market’s equilibrium rate. The suppliers will no longer be capable of charging the price that the market mandates, but they are required to meet the maximum price determined by the government’s price ceiling. When the demand rises beyond the capability to supply, shortages ensue. This leads to rationing of the product, causing some consumers to experience longer lines to obtain the product. In a worse case, there would be no products available for the consumer to buy.

Price fixing and exclusive dealings are harmful for consumers and small businesses trying to compete with large businesses. The issues with price fixing is that the consumers have to buy an item for a certain price. There is no supply and demand, along with the fact that the prices can fluctuate without any certain pattern. As the prices become higher, the company get

Prices in a market economy are very important. Price allows us to give out goods appropriately to those who are able to pay.

Price fixing scenarios require two main ingredients to be effective for the companies that attempt them. First, the demand curve for the product or service in question must be sufficiently inelastic such that a decrease in production will raise the price enough to ensure a higher profit level. The second requirement for price fixing is that participating companies must combine for an effective monopoly of the market in question. If two relatively minor companies decide to raise their prices together, this will only result in the rest of the market taking additional share, and the conspirators losing money.

Were now scarcer they could put the prices higher. This teaches us that we have to really look careful to what our government does, because we at the moment might think its better but it sometimes can be worse.

Price is the assignment of value of a product or service. Not only paid with currency, but in multiple manners these could consist of digital money such as the “bitcoin”. The bit coin has merged in to financial market and many firms are starting to use this type of virtual currency. These currencies cannot be controlled by one party (government) that is why it has been such a controversial issue.

The principal microeconomic issue at work is supply and demand. The author invokes a number of economic theorists (both liberal and conservative) who endorse price gouging out of a belief that it is simply the natural manifestation of a capitalist society that relies on supply and demand. There is a belief that preventing price gouging allows consumers to act with little consequence for their actions. According to this line of thinking, a business is well within its rights to raise prices because they should respond to public demand; at other times, there is little demand, so they are wise to take advantage when there is significant demand. Moreover, economic theorists have argued that price-gouging is positive because it makes people question whether the item they are considering purchasing

In some industries, there are no substitutes and there is no competition. In a market that has only one or few suppliers of a good or service, the producer can control price, meaning that a consumer does not have choice, cannot maximize his or her total utility and

If the government puts in a price ceiling, then the quantity demanded will exceed the quantity supplied, meaning that not enough goods or services will be supplied to satisfy demand. This situation is called a shortage. Because price ceilings are installed in the interests of