Answer to Question #248986 in Microeconomics for Akshay

Question

Why does government impose price ciling and price floor on certain commodities? Who are the benefits of both explain.

Answer 1

Government imposes a price ceiling to control the maximum prices that can be charged by suppliers for the commodity. This is done to make commodities affordable to the general public. However, prolonged application of a price ceiling can lead to black marketing and unrest in the supply side.

A price floor is designed to limit how much a price can be lowered on a product or group of goods. if set above the market equilibrium price, means consumers will be forced to pay more for that good or service than they would if prices were set on free market principles. If set below the equilibrium price, this prevents sellers from dropping their prices too far to circumvent competitors and dump products.

General public - beneficiaries of both. Efficiency in the market is enhanced.