Question

Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?

Answer 1

In India, there are many goods on which government has imposed price ceiling, in order to keep them available within the reach of the BPL (below poverty lime) people. These goods are kerosene, sugar, wheat, rice, etc.

The following are the consequences of price ceiling:

1) Excess demand − Due to artificially imposed price, cutting lower than the equilibrium price leads to the emergence of the problem of excess demand.

2) Fixed Quota − Each consumer gets a fixed quantity of good (as per the quota). The quantity often falls short of meeting the individual’s requirements. This further leads to the problem of shortage and the consumer remains unsatisfied.

3) Inferior goods − Often it has been found that the goods that are rationed are usually inferior goods and are adulterated.

4) Black marketing − The needs of a consumer remains unfulfilled as per the quota laid by the government. Consequently, some of the unsatisfied consumers get ready to pay higher price for the additional quantity. This leads to black-marketing and artificial shortage in the market.