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Price ceilling Essay

There are different ways the government in a developing country wants to protect consumers from conditions that could make necessary merchandises out-of-the-way. One of the things is price ceiling, which a government-forced limit on the price charged for a product. Price ceiling is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. Though, a price ceiling can cause problems if forced for a long period without controlled limits. Misuse occurs when a government accidentally priced a price as too high when the real problem is that the supply is too low. Price ceilings can produce negative results when the correct solution would have been to increase supply. It can introduce a black market, it can creates a persistent shortage, decreases in investment, or price on the black market ends up higher than the equilibrium price.

For example, if the government set a price ceiling on bread in order to make this basic food more affordable. And other side assuming that each hour that people wait in lines represents a lost hour of work. Under many circumstances the ceiling lead to long lines and thus high costs in lost work hours. A price ceiling that is below market equilibrium will be a binding price ceiling and that could cause a shortage due to increasing demand because of the lower price of the product. And it could create a black market where people can buy it for double the price for the bread. On the other hand, if there is an hour that an individual must wait in line, there is a lost hour of work for the supplier. Due to the supplier losing an hour of work it will cut into the profits of that firm making their total revenue. The supplier will already loose the benefit of selling to a certain buyer within that hour period. However if the firm hired more workers to create a shorter wait in the line they may be able to make the most out of it. So if the supplier reduces the time lost in work they can reach the point of profit maximization.

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