1. Price Ceiling
Definition: It is the maximum price to which producers are allowed to charge on the goods or services given.
• Purpose of the implementation
• To encourage the consumption of the certain commodities
• To lower the cost of the living
• To protect the low income earners
Illustration and effects
• From the diagram drawn above: -
• Controlled price would now be lesser
• There will be a shortage where the quantity demanded exceeds the quantity supplied
• Black market might develop as some of the consumers may be willing to pay the price higher than controlled price to obtain the commodities
2. Price Floor
Definition: This is the lowest price on which a particular commodity or service can be purchased.
• The Purpose of implementation
• Protect workers who posses weak bargaining skills
• Discourage the consumption of particular goods
• From the diagram drawn above :-
• Controlled price would now be higher
• There will be a surplus where the quantity supplied exceeds the quantity demanded
• Unemployment might increase
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