Answer to Question #139808 in Microeconomics for theophilus amoah

Question

In April 2007, there was shortage of Ghacem cement in the country which led to a rise in the
price of Ghacem cement. The government then intended to put a price ceiling on cement in
the country to minimize the loss to users of cement for construction purposes. Some people
were of the view that “the fixing of a price ceiling for cement in the country will not have any
effect”. Briefly discuss with the aid of an appropriate diagram, the effect of the imposition of
price ceiling on Ghacem cement market.

Answer 1

A price ceiling is defined as the legal maximum price imposed on goods or services. A price ceiling with the legal price lower than the market price, creates a shortage, as the competition for the limited supply increases. however, if the legal price is above the market price there is no effect in quantity.