Answer :

Price floor’ is the minimum price fixed by the government at which sellers can legally sell their product.

The effect of a price floor is mentioned below:


● When the government fixes the minimum price or the lower limit on the price that can be charged for a good or service, it is usually higher than the equilibrium price.


● This price is above the equilibrium price which implies an excess supply in the market.


● The sellers can try to sell their product at a price below the floor price because there is a surplus.


● This is usually imposed on agricultural price support programs and the minimum wage legislation.



● The x-axis represents the quantity demanded and supplied of wheat.


● The y-axis represents the price of wheat.


● D is the demand curve and S is the supply curve.


● Both the curves intersect at point E and the equilibrium price is OP.


● The government fixed the price floor at OP1. AB is the excess supply of goods.


● This is above the equilibrium level.


OR


Price ceiling' is the maximum price that sellers can legally charge for producing a service.


The effect of a price ceiling is mentioned below:


● When the government fixes the maximum price or the upper limit on the price that can be charged for a good or service, it is usually lower than the equilibrium price.


● Equilibrium price may be extremely high for some of the individuals to purchase.


● The government then intervenes and imposes the price ceiling.


● Since this price is below the equilibrium price, there is excess demand.


● The seller's me try to hold the good due to the shortage.


● This may even lead to black marketing.


● This is usually imposed on important items such as rice and wheat.



● The x-axis represents the quantity demanded and supplied of wheat.


● The y-axis represents the price of wheat.


● D is the demand curve and S is the supply curve.


● Both the curves intersect at point E and the equilibrium price is OP.


● OP might be too high for some of the people to afford.


● Wheat is a basic necessity product in every household, so the government intervene and imposes a price ceiling at OP1.


● This is below the equilibrium level.


Rate this question :

How useful is this solution?
We strive to provide quality solutions. Please rate us to serve you better.
Try our Mini CourseMaster Important Topics in 7 DaysLearn from IITians, NITians, Doctors & Academic Experts
Dedicated counsellor for each student
24X7 Doubt Resolution
Daily Report Card
Detailed Performance Evaluation
caricature
view all courses
RELATED QUESTIONS :

When priceof a goEconomics - Board Papers

When the price ofEconomics - Board Papers

Examine the effecEconomics - Board Papers

FEconomics - Board Papers

When the price ofEconomics - Board Papers