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 mandated maximum amount a seller is allowed to charge for a product or service.

Detailed explanation-3: -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-4: -Price ceilings that involve a maximum price below the market price create five important effects: Shortages, Reduction in Product Quality, Wasteful Lines and Other Search Costs, Loss of Gains from Trade & Misallocation of Resources. Q. Price Ceiling is a legal maximum on the price of a good or service.

Detailed explanation-5: -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.