Question

What is a price ceiling? Provide a real-world example. Who benefits from price ceilings and who is hurt by them? Overall, is the market more or less efficient after the imposition of a binding price ceiling? Explain.

Answer 1

A price ceiling in simple terms is the goverment intervention and restriction in the market to the producers to limit the maximum amount that they can charge to the customers

It is done to produce the consumers rights.

If it is not taken care then producer can charge at any amount to any customer

The more beneficiaries of this type of ceiling is consumers and it hurts mostly to the producers

one of the best example is in the 1975 when there was a sudden price hike of the crude oil

Then US government puts restricted price that should be charged from the customers

Binding price ceiling is said to be occur when government impose it below the equilibrium price and ultimately it restricts or binds the goods to be hiked

It is good in the short run for the protectio of the consumers but in the long run it will ultimately disbalance the demand and supply schedule because this will cause producers to produce less in the long run as they are suffering losses and ultimately leads to supply crunch in the market