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Explain the effects of 'Maximum Price Ceiling's on the market of a good. Use diagram. |
Answer» Solution : Maximum Price CEILING refers to imposition of upper limit on the price of a good by the government. For example, in the diagram, OP is Price Ceiling, while equilibrium price is `OP_(1)`. At this price, the producers are willing to supply only PA `(Or OQ_(1))`, while consumers demand PB `(Or OQ_(2))`. The effect of the ceiling is that SHORTAGE, equal to AB `(Q_(1)Q_(2))`. is created, which may further lead to black marketing. |
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