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 said to be legally binding when it is imposed below the equilibrium price level. Thus, it is the legal maximum price established by the government that can be charged for a product/service. At this level, the quantity demanded of a product/service overpasses its quantity supplied.

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: -The Government of India imposes price ceiling in the market of wheat, rice, sugar and other necessity goods.