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Government Intervention to Correct Market Failure
Intervention 3 – Price Controls-Minimum and Maximum Price
Maximum Price (Price Ceiling)
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What is a maximum price?:
It occurs when the government sets a price
below
the
equilibrium
price to encourage
output
and
consumption.
Where is the maximum price set?
below
the
equilibrium
price
A price ceiling can be used to protect the
interest
of
consumers
from soaring prices, such as escalating
rents
or
food
prices.
Why do Governments Impose Maximum Prices?:
To improve the
affordability
of essential
goods
and
services
like
housing
or
food.
Reduce
income
inequality
Why do Governments Impose Maximum Prices?:
To
improve
the
affordability
of essential
goods
and
services
like
housing
or
food.
Reduce
income
inequality
What does a maximum price create?
excess demand
