Question

Why has government been involved in setting the prices for some products---called price controls? Provide a...

Why has government been involved in setting the prices for some products---called price controls? Provide a real-world example of a price ceiling or a price floor (also known as a price support).

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Answer #1

Ans) Government controls the price when it feels that price of any product is too high or too low. This is called price control, where government sets some maximum or minimum price. It is of two types ÷ price ceiling and price floor.

Price ceiling is the legal maximum price that can be charged for any product. A binding price ceiling is below the equilibrium price and causes shortage. Government uses this when it feels that price of any product is too high. Eg- rent control, where government sets some maximum price and no owner can charge above that.

Price floor is legal minimum price that must be paid for any product. A binding price floor is above the equilibrium price and causes surplus. Government uses this when it feels that the price is too low. Eg- minimum wages, where government sets some minimum limit and no firm can pay their workers below that wage.

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