Question Define the nature of price controls and then discus

Question: Define the nature of price controls, and then discuss their expression as a price ceiling and a price floor, as well as the basic economic impacts of both. Be sure you have answered the question using your own words in a paragraph of at least 150 words. Proofread your work carefully to address any issues in grammar, spelling, punctuation, and capitalization. Your assignment should be typed in a Microsoft Word (or compatible) document.

Solution

Governments sometimes implement price controls which are legal maximum or minimum prices for specified goods or services. It helps in managing the economy by direct intervention. The two most commonly used price controls are price ceilings and price floor. Price floor is the legal minimum for a good or service and price ceiling is the legal maximum for a product.

It has been observed that price floor might be helpful in short run but in the long run they lead to problems such as shortages, rationing, decline in product quality, black markets etc. It leads to excess demand in case of price ceiling and excess supply in case of price floor and in practical life, they do not work. The prices determined by free play of market forces do not create any excess demand or excess supply as quantity demanded is same as quantity supplied at the point of equilibrium.