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Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
Price ceiling and price floor
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Price ceiling and price floor

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  • 1. Team : Ajay Gulwani Gagandeep Singh Nikhil Jindal Yogesh Singla Anup Agarwal Samir
  • 2. SUPPLY, DEMAND, AND GOVERNMENT POLICIES Price Controls measures : Price Ceiling: a legal maximum on the price of a good or service. Example: rent control. Price Floor: a legal minimum on the price of a good or service. Example: minimum wage.
  • 3. SUPPLY, DEMAND, AND GOVERNMENT POLICIES Equilibrium without price controls P Q D SRental price of apartments $800 300 Quantity of apartments
  • 4. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • Price ceiling above the equilibrium price is not binding –has no effect on the market outcome. P Q D S $800 300 Price Ceiling $1000
  • 5. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • The equilibrium price ($800) is above the ceiling and therefore illegal. The ceiling is a binding constraint on the price, causes a shortage. P Q D S $800 Price Ceiling $500 250 400 Shortage
  • 6. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • In the long run, supply and demand are more price-elastic. Therefore, the shortage will be larger. P Q D S $800 150 Price Ceiling $500 450 Shortage
  • 7. SUPPLY, DEMAND, AND GOVERNMENT POLICIES W L D SWage paid to unskilled workers $4 500 Quantity of unskilled workers Equilibrium Price
  • 8. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • A price floor below the equilibrium price is not binding – has no effect on the market outcome. W L D S $4 500 Price floor $3
  • 9. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • The equilibrium wage ($4) is below the floor and therefore illegal. The floor is a binding constraint on the wage, causes a surplus(i.e., unemployment). W L D S $4 Price Floor $5 400 550 Labor Surplus
  • 10. SUPPLY, DEMAND, AND GOVERNMENT POLICIES • Minimum wage laws do not affect highly skilled workers. Often, they affect teen workers. W L D S $4 Minimum Wage$5 400 550 Unemployment
  • 11.  Laissez Faire/Free Market Economics  Associated with capitalism  Role of Government  Equilibrium Level  Price Controls  Role of government  Reasons for implementation  Changes the Equilibrium Level
  • 12. What is Price Floor? Minimum prices set by government for a particular good or labor. Pros Higher Income for Producers Higher Income for Labor Cons Higher Prices for consumers Encourage oversupply and Ineffeciency Higher Unemployment
  • 13. What is Price ceiling ? Maximum prices set by government for a particular good/service. Pros Affordability Addresses to a wider section of the society Cons Lowers the Supply Creates shortage Emergence of Black Markets
  • 14. • Price ceiling ineffectiveness on a Global level - During the peak or ceilings prices of a product, a part of market does not abide to it. For ex, Year 2006, Venezuela’s price ceilings on coffee reached a breaking point as the same resulted in farmers hoarding the beans and been sold at loss at government prices. Further, the same led to formation of black market in the capital city and shortage. • India – Pharmaceuticals companies product “Atorvastatin” for prevention of ailment diseases, are sold from INR 9 per strip of 10 tabs to INR 90 per strip of 10 (the price leader), even as the price of the public procurement agency, Tamil Nadu Medical Services Corporation Ltd (TNMSC), is INR 2.13 per 10 tabs. The ceiling price would, therefore, be around INR 70-80 per 10 tablets and that is still a high price when the bare cost for procurements is around INR 2 per 10 tablets.
  • 15. • Indonesia – Airlines companies charged excess fares during the festival season violating all norms by transportation ministry. Further led the government to impose ceiling prices on all modes of transportation to prevent soaring prices.
  • 16. • US Minimum wage laws – Fixed salary or remuneration employers are required to pay to employees. • Price floors are often used in Agriculture sector in order to protect the farmers.
  • 17. Price Floor is the regulated lowest price set to benefit the poor. Economy and its development - However, price control often interfere with functioning of free economy and also the markets and many times becomes hurdle to growth of the economy. Production houses, middleman all are held responsible. However government uses these economic tools with backdrop of political motive and welfare of part section of the society.  •

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