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Module 10 Government Intervention in Price Control

The document discusses government intervention in market prices through the use of price ceilings. It defines a price ceiling as a maximum price that can be charged for a good or service, implemented to protect consumers. If the ceiling is set below market equilibrium, it can result in shortages as suppliers are unwilling to produce at the capped price. This leads to excess demand. Suppliers may also reduce quality or substitutes to maintain profitability. Price ceilings can cause inefficient allocation by preventing goods from reaching those who value them most.

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Jodie Cabrera
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122 views18 pages

Module 10 Government Intervention in Price Control

The document discusses government intervention in market prices through the use of price ceilings. It defines a price ceiling as a maximum price that can be charged for a good or service, implemented to protect consumers. If the ceiling is set below market equilibrium, it can result in shortages as suppliers are unwilling to produce at the capped price. This leads to excess demand. Suppliers may also reduce quality or substitutes to maintain profitability. Price ceilings can cause inefficient allocation by preventing goods from reaching those who value them most.

Uploaded by

Jodie Cabrera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Module 10: Government

Intervention in Market Prices: Price


Ceiling
EXPECTATION
S
• After going through this module,
you are expected to:
• 1. understand the price ceiling;
• 2. apply the price ceiling in a
real-world scenario; and
• 3. analyze the consequences of
the government in setting a
price ceiling.
Price Controls
• The supply and demand model shows how people and
firms will react to the incentives that laws provide to
control prices, in ways that will often lead to undesirable
consequences.
• Many Filipinos are complaining about the high prices of
commodities. Of course, they can’t afford to buy their
needs at higher prices.
• With this, the government intervene in the market prices
to augment the social benefit of the people through price
controls.
• Price controls are government-mandated legal minimum
or maximum prices set for specified goods, most
necessities.
• It is considered as a government policy to stabilize the
market prices for the benefit of consumers.
• However, there are consequences of imposing these price
controls. One of the price controls that the government
may adopt is the price ceiling.
Price Ceilings and
Price Floors
• Price ceilings and price floors are two
important concepts in applied economics
that are often used to regulate and
control prices in various markets.
• Let's have a comprehensive discussion of
both price ceilings and price floors,
including their definitions, purposes,
effects, and real-world examples.
Price Ceiling:
• A price ceiling is a government-
imposed maximum price that can be
charged for a particular good or
service.
• The primary purpose of a price ceiling
is to protect consumers by ensuring
that they can purchase essential goods
and services at an affordable cost.
• Price ceilings are typically used when
policymakers are concerned about
price gouging, inflation, or ensuring
that certain basic needs are met. Here's
a more detailed discussion:
Purpose:
• Protect consumers from
excessive price increases.
• Ensure access to essential
goods and services.
• Prevent price gouging during
emergencies or shortages.
• Maintain affordability for
low-income individuals.
Effects:
• Shortages: When the price ceiling is set
below the market equilibrium price, it can
create a shortage of the product because
suppliers are unwilling to produce or sell
at the capped price. This leads to excess
demand.
• Reduced Quality: Suppliers might
reduce the quality of the product or offer
less desirable substitutes to maintain
profitability.
• Inefficient Allocation: Price ceilings can
lead to inefficient allocation of resources
because products may not go to those
who value them the most.
Price
Floor:
• A price floor is a government-imposed
minimum price that must be paid for a
particular good or service. Price floors
are often implemented to support
producers by ensuring that they receive
a fair income for their products.
• They are typically used in agricultural
markets, labor markets, and in certain
industries where the government wants
to maintain a minimum standard of
living for producers.
Purpose:
• Support producers by ensuring a
minimum income.
• Stabilize agricultural markets by
preventing prices from falling
too low.
• Ensure fair wages for workers in
certain industries
Effects:
• Surpluses: When the price floor is set
above the market equilibrium price, it
can lead to a surplus of the product
because the quantity supplied exceeds
the quantity demanded.
• Wasted Resources: Surpluses can lead
to the waste of resources as more is
produced than needed.
• Inefficient Allocation: Price floors can
also result in the inefficient allocation of
resources since products may not go to
those who value them the most.
Posttest
• Directions: Read each
statement carefully.
Choose the letter of the
best answer and write it
on a separate sheet of
paper.
•1. It refers to the legal minimum or
maximum prices set for specified
goods.
•A. Price Controls
•B. Price Floor
•C. Price Ceiling
•D. None of the above
•2. It refers to the maximum prices
set by the government for products.
•A. Price Controls
•B. Price Floor
•C. Price Ceiling
•D. None of the above
•3. This happens when the
government imposed a price ceiling.
•A. Equilibrium
•B. Shortage
•C. Surplus
•D. None of the above
•4. This is where the price ceiling
located in the graph.
•A. Above equilibrium point
•B. Below equilibrium point
•C. Parallel to the equilibrium point
•D. None of the above
•5. This happens when the price is not
allowed to increase.
•A. The decrease in quantity demanded
•B. Increase in quantity supplied
•C. The new equilibrium price is
formed
•D. None of the above

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