Answer to Question #252987 in Microeconomics for Farooq

Question

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

Answer 1

Price ceiling helps in keeping ba price from rising above a certain level. It controls the maximum prices that can be charged by suppliers for a given good. The beneficiaries in this case are consumers, because price ceiling helps to ensure certain commodities are affordable to consumer and protects consumers from being exploited by very high prices.

Price floor helps in keeping prices from falling below a given level. When the level of production is maintained and there is a fall in demand, the government enters the market and buys up the product supplied thus adding up on demand and helping in keeping prices higher than they would otherwise be. The beneficiaries of price floors are producers.