Price Ceiling: Advantages And Disadvantages Of Price Limitations

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Graphical understanding of price ceiling: This graph shows a price ceiling. P^e shows the legal price the government has set, but P^f shows the price the marginal consumer is willing to pay at Q^s, which is the quantity that the industry is willing to supply. Since P^f > P^e (MC), a deadweight welfare loss results. P^e and Q^e show the equilibrium price. At P^c the quantity demanded is greater than the quantity supplied. This is what causes the shortage. price ceiling creates a shortage when the legal price is below the market equilibrium price, but has no effect on the quantity supplied if the legal price is above the market equilibrium price. A price ceiling below the market equilibrium price creates a shortage that causes consumers…show more content…
Price ceilings are also beneficial for keeping the cost of living affordable during periods of high inflation. Inflation describes the trend of prices for goods and services to gradually increase over time. During high inflationary periods, prices increase faster than incomes, which reduce the dollar’s purchasing power, making price ceilings necessary for consumers to maintain their standard of living. Price Ceiling disadvantages: Price ceilings can have negative impacts on the marketplace too. Suppliers are discouraged from producing more of an item when they can’t set their own prices, therefore, supply of key resources will decline, reducing availability to the market. Price ceilings also reduce the quality of products, as suppliers have less financial resources to reinvest in their business. Government rationing and queuing When there is extreme shortage in the market, government begins rationing distribution to restrict the demand of the consumers. As a result, consumers won’t be able to utilize as much goods as they…show more content…
Ibn taimiyah viewed this based upon two different ideas: 1) In accordance to Hambali and Syafi’I schools , they conclude that states does not have the authority upon price controlling. While the second idea refers to the schools of Maliki and hanifi of which they argue that state has a right to regulate the market price through a just price policy. He concludes that The increasing of price is not a sign that price mechanism cannot run well, but it is a result of market power bargaining (risk, uncertainty, incentive, disincentive, quantity, etc. Taimiyah rejects monopolistic rent or collusion practice, but support to just price mechanism. Taimiyah’s view in line with free-entry and free-exit mechanism in
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