Implications of price floor and price …

Price ceiling is the maximum price of a good which sellers can expect from buyers. This price is fixed by the government and is lower than the equilibrium market price of a good (OPe). Hence, the price ceiling leads to excess of demand and contract of supply.
Effects of price ceiling:
i. Price ceiling enables the availability of basic goods at reasonable prices to the poor. This enables to increase the welfare of the people.
ii. When there is a fall in the price level, the demand for a good increases more than the supply of the good. Hence, it creates an excess demand for the good.
iii. A consumer receives only a limited quantity of goods because the fixed quota system is followed. So, the consumer would not be able to satisfy his/her needs.
iv. Goods which are available at ration shops are mostly of a low quality.
v. As the consumer demands are not satisfied, they are willing to pay a high price for satisfying their demand in the market. This results in black-marketing which reduces the actual availability of goods in the market.