Government Interventions in Price Control

Abstract

The consumers and producers are necessarily not satisfied at the equilibrium level of prices of goods. Government intervention is required to maintain their interest and to provide assistance to the producers and consumers. Government sets the minimum and maximum level of prices for the assistance to the producers and consumers. The consequences of government interventions are inefficiency and occurrence of black markets exists in the market. The ways are discussed in the paper which government implements to remove the inefficiency and unlawful activities from the markets.

Table of Contents

Abstractii

Introduction1

Research Question of the Paper1

Discussion1

Price ceiling1

Reason of government intervention2

Aftermaths of price ceiling3

Ineffectiveness3

The Occurrence of underground economy3

Government actions in controlling the situation3

Price Floor4

Reason of implementing price floor4

The aftermaths of price floor5

Government measures in minimizing the prices5

Conclusion5

References7

Government Interventions in Price Control

Introduction

A market always tries to attain the equilibrium price level in which both the quantity supplied and quantity demanded both get balanced at which both the producers and consumers are necessarily not satisfied because the buyers always want to pay less (Hall, n.d.). Unlike, sellers always want to get more money in return of their goods which results in the demand for government to intervene in the markets to control the prices, to give the assistance to the consumers and to ensure that the sellers are not creating chaos in the markets by changing the prices as they wish. Consequently, the inefficiency is created in the market (Graddy, 2006).

Research Question of the Paper

Following is the research question of the paper.

Why there is a need to control the prices and what are the different ways to control the prices?

Discussion

Price ceiling

It happens when the government controls the price exceeding maximum. It should be lower than the market equilibrium for making the price ceiling effective, which is known as maximum price resulting in the shortage that will continue.

Reason of government intervention

A market always tries to attain the equilibrium price level in which both the quantity supplied and quantity demanded both get balanced. But it is not mandatory that both the supplier and buyer are satisfied at this level. It happens because buyers always want to pay less. Unlike, sellers always want to get more money in return of their goods. Therefore, there is a strong demand for government to interfere in the markets to regulate and control the prices. These interventions take the form of either an upper limit i.e. a price ceiling or ...