Page 8 - Home Assignment-Price determination

Price ceiling

Price ceiling refers to fixing the maximum price of a commodity at
a level lower than the equilibrium price by the Government to
protect the intrest of the consumers.

Y
S
Pri
ce

E

Price ceiling

P D
X
O Q Quantity demanded
and

quantity supplied

In the aboe diagram the eqilibrium price OP and quantity OQ is
determined at point E where market demand = market supply. As the
market determined price is too high for the common men the

Government determined the price at which is below the equilibrium

price.i.e. price ceiling.

Implications:-

 It will create an excess demand stuation in the market.
 It will create a long que in front of the ration stores by the consumers to
get there day to day requirements.

 It will give rise to un-ethical lines of business like black marketing,
hoardings etc.