In countries like
India essentials of life, like certain food grains or life saving medicines,
are often found to be extremely scarce.
Their prices are often found to be
high. Poor population found it difficult to buy them. Such a situation often
compels the government to intervene in the market with Price Ceiling.
It means fixing a maximum price for a commodity
which is generally much below the equilibrium market price.
Ceiling means maximum limit. Price ceiling means the maximum price
of a commodity that the seller can charge from the buyers for a particular good
and service. It is also termed as Maximum price Legislation.
Price
Ceiling Policy
Let us understand the implication of price ceiling policy
through the below graph.
 |
| Price Ceiling |
DD and SS are the demand and supply curve
respectively. OP is the equilibrium price and OQ is the equilibrium quantity. E
is the point of equilibrium.
