Answer to Question #247525 in Microeconomics for Annie

Question

Why does government impose price ceiling and price floor on certain commodities ? Who are the beneficiaries of both.

Answer 1

Price ceiling helps to keep a price from rising above a certain level. It controls the maximum prices that can be charged by suppliers for a given commodity. This is beneficial to the general public (consumers) because it helps in ensuring that the given commodity is affordable.

Price floor helps in keeping the price from falling below a given level. Beneficiaries in this case are producers. The government enters the market and buys up the product hence adding on demand which helps in keeping prices higher than they would otherwise be.