ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -A price ceiling, also called price cap, is the maximum price that a seller is allowed to charge for a particular good or service by law. It is an instrument of market regulation that governments may use to ensure that firms do not abuse their market power by charging consumers excessively high prices.

Detailed explanation-2: -A price ceiling is the maximum price of a good which sellers can expect from buyers. This price is fixed by the government and is lower than the equilibrium market price of a good(OPe). Hence, the price ceiling leads to the excess of demand and contract of supply.

Detailed explanation-3: -Definition: Price ceiling (maximum price) – the highest possible price that producers are allowed to charge consumers for the good/service produced/provided set by the government. It must be set below the equilibrium price to have any effect.

Detailed explanation-4: -A price ceiling keeps a price from rising above a certain level-the “ceiling”. A price floor keeps a price from falling below a certain level-the “floor”. We can use the demand and supply framework to understand price ceilings. In many markets for goods and services, demanders outnumber suppliers.

Detailed explanation-5: -Price ceiling refers to the mechanism by which the price for a good is prevented from rising to a certain level. In contrast to that, price floor is the mechanism by which the price of a good is prevented from falling below a certain level.