Price Control Essay
The price ceiling is the maximum price a seller is allowed to charge for a product or service. An impact on society includes when the prices are so high of a product, that no one can buy it. A price floor is the lowest legal price a product or service can be sold at. When market price is at its lowest, it may still be too high for consumers to purchase products. Governments can intervene for any purpose, and they are the ones who set these price controls.
Governments may intervene in the market system to fix prices above or below equilibrium if they believe that it is in the public interest to do so. Governments may intervene in the provision, regulation, maintenance and management of public goods to maximise the benefits to the community from their use, and to prevent over exploitation or congestion of the resource.
A price ceiling is where a maximum price for a good or service is established below market equilibrium. It can make products more affordable for consumers, by having a level in which prices cannot rise above. This means that the prices consumers have to pay for a product are lower than what they would be at market equilibrium price. For example, if the government think that people need bread to live, and that the market price of bread is too high, then they might install a price ceiling. The price of bread could be $3 a loaf, and the government may reduce the price to $2 a loaf. This would have a large impact on consumers as it is necessary that they eat bread to survive. This means that they would have to pay less for bread and be able to purchase more.
The following graph represents the market for bread. At equilibrium, the price will be p*, and the quantity will be q*. When the price ceiling is added, qs becomes the new quantity supplied, qd is the quantity demanded, and pceiling is the price. The blue S stands for supply, and the red D stands for demand.
Although this price control seems to have a good effect on consumers, this isn’t
Governments may intervene in the market system to fix prices above or below equilibrium if they believe that it is in the public interest to do so. Governments may intervene in the provision, regulation, maintenance and management of public goods to maximise the benefits to the community from their use, and to prevent over exploitation or congestion of the resource.
A price ceiling is where a maximum price for a good or service is established below market equilibrium. It can make products more affordable for consumers, by having a level in which prices cannot rise above. This means that the prices consumers have to pay for a product are lower than what they would be at market equilibrium price. For example, if the government think that people need bread to live, and that the market price of bread is too high, then they might install a price ceiling. The price of bread could be $3 a loaf, and the government may reduce the price to $2 a loaf. This would have a large impact on consumers as it is necessary that they eat bread to survive. This means that they would have to pay less for bread and be able to purchase more.
The following graph represents the market for bread. At equilibrium, the price will be p*, and the quantity will be q*. When the price ceiling is added, qs becomes the new quantity supplied, qd is the quantity demanded, and pceiling is the price. The blue S stands for supply, and the red D stands for demand.
Although this price control seems to have a good effect on consumers, this isn’t