Question

What would happen if, in order to provide lower cost healthcare, the government decided to set a price ceiling (Pmax) in the health insurance market? What is the effect of this maximum price legislation on the market for health insurance? Briefly explain the situation for both consumers and producers (i.e. healthcare providers). What might the government do to achieve their intended aims (i.e. lower costs and increased quantity)?

Answer 1

Price ceiling is the price control technique used by the government to make sure that the price of the product don't go beyond that ceiling price.

Most of the times Government will keep price ceiling to help the people but these price ceiling always bring unintended consequences which may have an very negative impact on the people. So price ceiling should always be kept after doing perfect Analysis.

If there is price ceiling to provide low cost health care than the people who didn't take up health care will also take that which is a good sign as people are utilising the health care which is provided by the government. Problem is that it will help the producers but it will have negative impact on government and producers.

Producers have to reduce their prices which is like a loss for them where as when more people are taking the health care due to this price ceiling than the government spending will also increases along with producer burden.

The only thing is that what ever government want to achieve will be achieved.