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Price Floor And Price Ceilings - Coggle Diagram
Price Floor And Price Ceilings
What is price floor?
If the price of a good is too low for the seller to afford the cost
The government can intervene and set a price floor
A price floor is the minimum price set for a good in the market
Prices cannot go below this
This is meant to protect the sellers
Mostly done for agricultural products.
Effects of setting a price floor
If consumers feel the price is too high ,demand decreases
So now surplus is created in the market
As there is surplus ,prices ,should fall but this does not happen
As there is a price floor set
So instead of setting a price floor ,there is another way
U can increase the demand by having celebrities endorse that the product is beneficial for health
And increase in demand will lead to increase in prices
Eg: price floor set on milk
Price Floor Surplus
Price Ceilings
A max legal price is set in the market when the equilibrium price is high
To protect the buyers
Done for necessary goods so that they are affordable by all income groups
The price is set below the equilibrium price
Because the prices are low ,there is excess demand and resulting shortage
In spite of shortage the prices cannot go up because of price ceiling
What can be done,alternative sources of supply can be found to meet the demand and decrease the price
Price ceiling set on gas prices,rent prices
Price Ceiling And Shortage
