Price Control

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

Illustration and effects

• 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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