ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -It prevents extraordinary increase in the price of goods and services. It lowers the prices for the consumers. It stops producers from charging exorbitant prices on their products. It increases the efficiency of the producers by leading them to reduce production costs in order to save money.

Detailed explanation-2: -For the measure to be effective, the ceiling price must be below that of the equilibrium price. The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases.

Detailed explanation-3: -A price ceiling above the competitive equilibrium price will result in a surplus. A price ceiling below the competitive equilibrium price will result in a shortage.

Detailed explanation-4: -A pricing ceiling is nothing more than a legal limit. The term “equilibrium” refers to the state of affairs in the economy. People may or may not follow the price ceiling, thus the actual price may be at or above it, but the price ceiling has no effect on the equilibrium price.