What are the positive and negative effects of price ceiling? URGENT
1. Intacts the social welfare- By imposing the maximum price, government ensures the accessibility of the necessary goods within the reach of the poorer section of the society, thus, price ceiling ensures the social welfare. For instance, think of the present scenario of onions and how price ceiling has played its role.
2. Pro-rata distribution of goods- With the imposition of the price ceiling, although every member of a society can access the goods, yet in fixed quota. That means, everyone consumes lower than what they demand. This is a positive aspect in a sense that atleast all the members can enjoy the consumption of the goods.
3. Discourages trading malpractices- Price ceiling checks the sellers from charging outrageously higher prices.
1. Fixed quota- Each consumer gets a fixed quantity of good (as per the quota). The quantity often falls short of meeting the individual’s requirements. This further leads to the problem of shortage and the consumer remains unsatisfied.
2. Excess demand- Due to artificially imposed price, cutting lower than the equilibrium price leads to the emergence of the problem of excess demand.
3. Black marketing- The needs of a consumer remains unfulfilled as per the quota laid by the government. Consequently, some of the unsatisfied consumers get ready to pay higher price for the additional quantity. This leads to black-marketing and artificial shortage in the market.
4. Inferior goods- Often it has been found that the goods that are rationed are usually inferior goods and are adulterated.