What is the maximum price ceiling? Explain its implications.

OR

Explain the chain effects, if the prevailing market price is below the equilibrium price.

The maximum price of a good expected by a buyer from a seller is known as the price ceiling. This price is lower than the equilibrium market price of a good and is fixed by the government. Therefore, excessive demand and contract of supply is a result of price ceiling. There are various effects of price ceiling:

1. Basic goods are available to the poor people at a very reasonable price, in a positive way it affects the welfare of the people.

2. The demand of good increases more than the supply of the good whenever there is a drop in the price of the good resulting into the demand for good excessively.

3. The followed fixed quota system assigns every individual with a fixed quantity of good which leads to dissatisfaction of the consumer.

4. Low quality goods are mostly available in the ration shops for below poverty line card holders.

5. Black marketing results in the decrease of actual availability of goods in market. Black marketing is usually the consequence of dissatisfied consumer which make them pay higher prices for a good to meet their demands.

These are some of the implications.

OR

When equilibrium market price of a good is more than the price, the price ceiling becomes excessive than demand. The competition among consumers in the market is increased by excess demand. Hence, the food is consumed by the consumers at a higher price which in turn leads to an increase in the price level.