Question

During the spread of COVID-19, the price of surgical masks skyrocketed. Some people in Hong Kong...

During the spread of COVID-19, the price of surgical masks skyrocketed. Some people in Hong Kong suggested the government to impose a price ceiling on surgical masks. Explain, in economic sense, why this might not be a good idea in handling the needs of Hong Kong people.

Homework Answers

Answer #1

A price ceiling is a maximum limit imposed on the market price above which it cannot be sold. if the market price is above the ceiling price then the ceiling price becomes binding. In case of market for surgical masks, if there is a price ceiling then quantity demanded will be greater than quantity supplied. Then this will result in shortage of masks and the government will have to make the necessary arrangement for rationing of masks. this shows that this is not a good idea for the needs of the people because a shortage is not what the market is expecting. Instead the government should provide subsidy so that production can be increased

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