Question

This assignment is very straightforward. You are an economic analyst and have been asked to go on television and provide an analysis of what happens when a price ceiling is imposed on an item. I assume that you will have read notes on price ceiling and viewed the tutorial and or the marginal revolution price ceiling videos before doing this assignment

So basically what you are submitting here is your "script"
Make sure to cover 4 consequences. Be creative!

Answer 1

A price ceiling keeps a control on the rising prices of a particular product. It keeps the price from rising above a particular level. In a way ceiling is imposed on the rising prices. Example Suppose a town suddenly becomes very popular due to coming of MNC's and huge infrastructural development and large job opportunities. In this case a large number of people will migrate to this town . As a result demand for housing will increase as compared to supply. As a result the rent will increase at an alarming rate. To control this unfair increase in rent price ceiling may be imposed. According top this ceiling rent will not exceed beyond a particular limit. This is done to safeguard the interests of the society. Other areas where price ceiling can help are Prescription Drugs, Auto Insurance.

There are certain disadvantages of price ceiling:

• When the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs.
• Due to shortage some people will not be able to purchase the product at all.
• Sellers will suffer losses as people will buy the product at low prices offered.
• Quality of the product also suffers in case of price ceiling.