Question

With the aid of diagrams differentiate a price ceiling and price floor as goverment intervention measures to market failure?

Answer 1

Price ceiling refers to the highest benchmark from which price cannot rise.

Price floors refers to the lowest benchmark from which price cannot fall below.

When government tries to interfere with these measures government end up doing price control regulating the price instead of giving the market forces to determine the prices.

due to price ceiling below the equilibrium price, there will be more of demand then the supply thus causing the situation of excess demand or shortage so, this policy is failure if government intervene the market forces.

due to price flooring above the equilibrium price, there is situation of excess supply or surplus which refers to the overproduction or say wastage so, this policy is also failure if government intervene the market forces.