Price Control Homework Help

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

82_price control.png

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

702_price control1.png

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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