Question

Q. Why some governments resort to price ceiling and price floor for some goods and services? Describe three most important disadvantages of price ceiling and price floor? In what conditions do think that price ceiling and price floor may contribute to the welfare of people?

Answer 1

Price ceiling prevent a price from rising above a certain level.

Price floors prevent a price from falling below a certain level.

When a price ceiling is set below the equilibrium price,quantity demanded will exceed quantity supplied ,and exess demand or shortages will result.When a price floor is set above the equilibrium price,quantity supplied will exceed quantity demanded , and excess supply or surpluses will result. So the government laws regulate prices instead of letting market forces,determine prices ,it is known as price control.

In some cases ,discontent over prices turns into public pressure on government,who may then pass legislation to prevent a certain price from climbing "too high "or falling "too low".

Price controls come in two flavors.A price ceilimg 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"

In many markets for goods and services, demanders outnumber suppliers, consumers, who are also potential voters,sometime unite to convince the government to hold down a certain place.A price floor is the lowest legal price that can be paid in market for goods and services, labor or financial capital.The best example for price floor is the minimum wage for labor.

Disadvantages:

The farmers will benefit from the price floor , but the tax payers and consumers of food will pay the cost.

the effects of price ceiling are complex and sometimes unexpected.

In the case of rent control, the price ceiling does not benefit renters at the expense of landlords.