Preview

Price Control Essay

Good Essays
Open Document
Open Document
1233 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Price Control Essay
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 community from their use, and to prevent over exploitation or congestion of the resource.
A price ceiling is where a maximum price for a good or service is established below market equilibrium. It can make products more affordable for consumers, by having a level in which prices cannot rise above. This means that the prices consumers have to pay for a product are lower than what they would be at market equilibrium price. For example, if the government think that people need bread to live, and that the market price of bread is too high, then they might install a price ceiling. The price of bread could be $3 a loaf, and the government may reduce the price to $2 a loaf. This would have a large impact on consumers as it is necessary that they eat bread to survive. This means that they would have to pay less for bread and be able to purchase more.
The following graph represents the market for bread. At equilibrium, the price will be p*, and the quantity will be q*. When the price ceiling is added, qs becomes the new quantity supplied, qd is the quantity demanded, and pceiling is the price. The blue S stands for supply, and the red D stands for demand.

Although this price control seems to have a good effect on consumers, this isn’t

You May Also Find These Documents Helpful

  • Good Essays

    Assignment 10

    • 1052 Words
    • 4 Pages

    2. Describe at least one advantage and one disadvantage of price ceilings and price floors. Do you think price ceilings and floors are more helpful or more harmful to consumers and the economy? Explain. (2-4 sentences. 1.0 points)…

    • 1052 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Gas Prices

    • 533 Words
    • 3 Pages

    According to the author, a price ceiling and a price floor are both limits. One is a maximum limit and the other is a minimum limit imposed on the price of a good or service by the government. A price ceiling does three things. It increases the quantity demanded, decreases the quantity supplied and creates a market shortage. A price floor does the same but opposite (Brownfield, 2007).…

    • 533 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Essay Supply and demand

    • 633 Words
    • 2 Pages

    Explain (in your own words) the dynamics of equilibrium price. That means to say, teach me step-by-step how the laws of supply and demand combine with basic assumptions about shortages and surpluses to lead to a concept of market equilibrium. In this essay, be sure to include definitions and examples.…

    • 633 Words
    • 2 Pages
    Good Essays
  • Good Essays

    * One advantage of price ceilings is that it helps the consumers to have a chance to buy products, and stop producers of taking advantage of such a catastrophe. The disadvantage between this price ceiling and the common ones is that the price ceiling is set on the equilibrium before the catastrophe and not under the equilibrium.…

    • 1014 Words
    • 5 Pages
    Good Essays
  • Good Essays

    A price control is either a price ceiling or a price floor. Essentially a law is passed that controls a maximum a product can sell for (price ceiling) or the minimum a product can sell for (price floor). A negative effect of a price ceiling, for example on prescription drugs, would be that drug companies would possibly produce less than they currently do because it wouldn’t be cost effective to make more.…

    • 293 Words
    • 2 Pages
    Good Essays
  • Satisfactory Essays

    Eco/365 Week 2 Assignment

    • 552 Words
    • 3 Pages

    | Price ceiling - quantity demanded exceeds producers’ quantity supplied. In this type of scenario, non-price methods such as rationing the limited supply of two-bedrooms may become a factor.…

    • 552 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    problem set 2

    • 966 Words
    • 4 Pages

    a) This price ceiling will have two effects. First it will result in a shortage in the market since quantity demanded will now exceed quantity supplied. The second effect will be the emergence of a black market, where the good will be traded illegally.…

    • 966 Words
    • 4 Pages
    Good Essays
  • Good Essays

    Costs and Price

    • 1595 Words
    • 7 Pages

    10. The intersection of supply and demand will be at a lower equilibrium price but a higher equilibrium quantity if…

    • 1595 Words
    • 7 Pages
    Good Essays
  • Satisfactory Essays

    price ceilling

    • 364 Words
    • 1 Page

    There are different ways the government in a developing country wants to protect consumers from conditions that could make necessary merchandises out-of-the-way. One of the things is price ceiling, which a government-forced limit on the price charged for a product. Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. Though, a price ceiling can cause problems if forced for a long period without controlled limits. Misuse occurs when a government accidentally priced a price as too high when the real problem is that the supply is too low. Price ceilings can produce negative results when the correct solution would have been to increase supply. It can introduce a black market, it can creates a persistent shortage, decreases in investment, or price on the black market ends up higher than the equilibrium price.…

    • 364 Words
    • 1 Page
    Satisfactory Essays
  • Good Essays

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

    • 1186 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Economics Year 1

    • 2483 Words
    • 10 Pages

    As stated on the fundamental economics finance website (http://economics.fundamentalfinance.com/price-ceiling.php) “a price ceiling occurs when the government puts a legal limit on how high the price of product can be. In order for a product to be effective, it must be set below the natural market equilibrium.”…

    • 2483 Words
    • 10 Pages
    Powerful Essays
  • Good Essays

    Rent Control

    • 702 Words
    • 3 Pages

    In some places, like New York City, rent control and rent stabilization are different things and have different set of regulations. In other places, like Los Angeles, the two terms mean the same thing. Cities with rent control and/or rent stabilization usually have boards or agencies that enforce the laws and where both tenants and landlords can get information about their rights and responsibilities.…

    • 702 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Price and State Farm

    • 476 Words
    • 2 Pages

    Defenders of Communist economic system may point out that consumers pay lower prices for certain good because the government imposes a limit on what producers may charge. Cite at least two other ways that consumers may be “paying” for these goods.…

    • 476 Words
    • 2 Pages
    Satisfactory Essays
  • Better Essays

    Assuming there is pure competition in the market place, and no government intervention, we are able to focus on how the price mechanism determines the equilibrium price in the market. Markets can be effective at resolving the basic issues of what and how much to produce at a certain price level although left to operate on its own, the market can still create unsatisfactory outcomes. When markets do not produce the desired outcome, it is known as market failure and when this occurs, governments may intervene in the market.…

    • 1706 Words
    • 6 Pages
    Better Essays
  • Good Essays

    Cigarette Price Increase

    • 1212 Words
    • 5 Pages

    When a price floor is set, there will be a market failure because that will be an underproduction. Even the price floor is set but it will not easily affect the demand and the supply of the cigarette as smokers will not just stop smoking because of that. A price floor makes the buying price and the selling price results in inefficient underproduction. If the market is underproduction then the surplus problem in the market will be solved. The underproduction will make losses to the social is because it do not satisfy the need of people in the market.…

    • 1212 Words
    • 5 Pages
    Good Essays