What is price ceiling?

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A price ceiling is the set limit on how much a seller can charge for a service or product. Price ceilings are normally imposed on necessities such as energy and food supplies when they become costly to regular customers, and they are typically determined by law. Simply said, a price ceiling is a price control mechanism. Price ceilings can be beneficial in that they keep necessities inexpensive, at least for a while. Economists, on the other hand, argue over the long-term value of such ceilings. Excess demand is produced whenever an effective price ceiling is imposed, together with a shortage in supply. This is because producers do not want to sell at a lower price, and customers want cheaper items. As a result, deadweight loss occurs. Consumer surplus would be net positive if the demand curve is relatively elastic, but the change in producer surplus will be negative.

The Disadvantages of Price Ceiling:

  • By charging additional fees, vendors will try to get around the maximum price.
  • Consumers who are ready to pay more than the mandated price will illegally obtain the necessary services or goods at a higher price, creating a black market.
  • Prices are unable to respond to demand, resulting in shortages.
  • There would be an excessive quantity of demand when prices areconstrained by price ceilings.
  • It produces an artificialsupply and demand imbalance.
  • Sellers strive to maintain their revenues by lowering the quality of their products.

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Pieter Borremans
By Pieter Borremans

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