government regulatiok of market prices
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6 Terms
Price ceiling
This is the maximum legal amount imposed by the government in goods and services. Producers cannot charge abive the price ceiling. It occurs below equilibrium price
Advavntages of price ceiling
It benefits the consumer
It reduces inflation
Disadvantages of price ceiling
Leads to shortages where Qd exceeds Qs
Black market products and hoarding
Discourages production
Queing for products
How can govt maintain price ceiling
Ban hoarding and black market
Participate in production
Provide subsidies for producers
Encourage importation
Price floor
Minimum legal price imposed by government for goods and services. It is always above equilibrium price
Advantages
It is beneficial to consumers
Disadvantages
It leads to surplus
Detrimental to consumers
How can govt maintain price floor
By purchasing surplus from the market causing supply curve to shift to the left
Quota system where each producer is given an amount to supply reducing surplus
Crate alternative uses for products
