Price Control Essay

1246 Words5 Pages
The price ceiling is the maximum price a seller is allowed to charge for a product or service. An impact on society includes when the prices are so high of a product, that no one can buy it. A price floor is the lowest legal price a product or service can be sold at. When market price is at its lowest, it may still be too high for consumers to purchase products. Governments can intervene for any purpose, and they are the ones who set these price controls.
Governments may intervene in the market system to fix prices above or below equilibrium if they believe that it is in the public interest to do so. Governments may intervene in the provision, regulation, maintenance and management of public goods to maximise the benefits to the
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Because consumers aren’t paying as much for the product, producers will not be able to produce as much at the lower price, and consumers will demand more because the product is cheaper. The end result will be consumers not being able to buy the product since there is not enough being made. For example, the price of milk was $2 per litre, and has now been reduced to $1 per litre. This will be great for consumers as they can buy more milk for less, until it runs out. Therefore price ceilings have a good impact on consumers.
For producers, price ceilings don’t have as good an impact as it does on consumers. Since the consumers are paying much less money for goods and services, they simply cannot afford to make any products. It will have a harmful effect on producers, as their surplus will decrease, resulting in them not making as much product. For example, if the price of lettuce decreases from $7 to $5, then that means a decrease in the amount of money producers are getting. They will not have enough money to grow lettuce, so there will be none or little lettuce harvested to be sold. This means that price ceilings have a large impact on producers, and not in a good way.
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
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