Answer to Question #257113 in Microeconomics for Mohammed

Question

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

Answer 1

Price ceiling

This helps in keeping a price from rising above a certain level. It controls the maximum prices that suppliers can charge for the commodities that they supply. The beneficiaries in this case are the general public (who are the consumers). This is because price ceiling helps to ensure that the commodity is affordable.

Price floor

This helps in keeping a price from falling below a certain level. The beneficiaries are producers. The government enters the market and buys up the product and thus helps in adding up on demand. This helps in keeping prices higher than they would otherwise be. This favors producers.