Answer to Question #174102 in Microeconomics for Udit Chauhan

Question

The equilibrium price of rice is Rs. 50/kg. Government imposes a ceiling price 

Rs. 40/kg. Using diagrams to show how this will impact the rice market and the 

wages of rice growers. 

Answer 1

Price ceiling helps to reduce a price of a commodity from increasing above a certain agreed price level. When a price ceiling is lower than the equilibrium price, amount of substance demanded is more than the amount of substance supplied. This causes higher amount of goods demanded reducing its supply. Producers begin to lower or stop the production of goods resulting to lower amount of commodities supplied in the market. Demand of commodity by consumers increases with reduction in price