Price Control, Price Ceilings and Price Floors

Price controls:

The Price controls are governmental limitations on the prices which can be charged for services and goods in the market. The intention behind implementing these controls can stem from the wish to sustain the affordability of staple goods and foods, to prevent the price gouging throughout shortages, and to slow the inflation, or, alternatively, to assure a minimum income for the providers of certain goods or a minimum salary. There are two main forms of price control: price ceiling (or maximum price) which can be charged, and the price floor (or minimum price) which can be charged.

In history, price controls have frequently been obligatory as portion of the larger incomes policy package as well employing wage controls and other regulatory elements.

Though price controls are frequently employed by governments, economists generally agree that the price controls do not achieve what they are planned to do and are usually to be avoided.

Price Ceilings:

A) The Price controls are legal limitations on how high or how low the market price might go.

  • Price ceilings state a maximum price sellers are permitted to charge for a service or good.
  • Price floors state a minimum price buyers are needed to pay for the service or good.

B) Illustrations of the price ceilings are as follows:

  • Rent controls (example: New York City and San Francisco).
  • Calls for the salary caps for Wall Street CEO's
  • Price controls in the Venezuela.
  • Natural gas price controls (that is, Natural Gas Act of 1938).

Price Floors:

Price floors are the flip side of the price ceilings.

Price floors actually take two forms:

A) Legal floors that is, the government species a minimum price beneath which the service or good can’t be sold.
B) The price support programs in which the government mediates in the market, purchasing the service or good till the price reaches the preferred level.

The illustrations of the price floors comprise:

  • In trucking and airline industries.
  • Mainly used in the agricultural sector: comprising corn, sugar, tobacco, milk, cotton and so on.
  • Since with the price ceilings, price floors do help several sectors of the economy, however they make a number of indecencies.

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