2006-09-03 23:37:11 · 5 answers · asked by shagor c 1 in Education & Reference ➔ Homework Help
This could either mean: "How does one price ceiling works?" (i.e. plastering, decoration &c.) or "How does the concept of a price ceiling work?"
Since it is in Homework Help, it could conceivably be either. You need to be more specific!
2006-09-03 23:45:14 · answer #1 · answered by Owlwings 7 · 0⤊ 0⤋
Price Ceiling is a government-imposed limit on how high a price can be charged on a product. For a price ceiling to be effective, it must differ from the free market price. In the graph at right, the supply and demand curves intersect to determine the free-market quantity and price.
A price ceiling can be set above or below the free-market equilibrium price. In the graph at right, the dashed line represents a price ceiling set above the free-market price. In this case, the ceiling has no practical effect. The government has mandated a maximum price, but the market cannot bear a price that high.
In contrast, the solid green line is a price ceiling set below the free-market price. In this case, the price ceiling has a measurable impact on the market.
A price ceiling set below the free-market price has several effects. Suppliers find they can no longer charge what they had been charging for their products. As a result, some suppliers drop out of the market. This represents a reduction in the quantity supplied. Meanwhile, demanders find that they can now buy the same product at a lower price. As a result, market demand increases as new buyers enter the market and existing buyers consume more of the good.
2006-09-04 06:55:38 · answer #2 · answered by Anonymous · 0⤊ 0⤋
A price ceiling works by putting at limit on how much a price can increase to.
For example, you may sign a contract to rent a house for 5 years.
+ The monthly rent is agreed now to be £200.
+ However, after say 3 years your landlord is allowed to review the rent - so he may put it up!
+ But there is also a price ceiling in your contract, which states that the price may not go over £250 at the review date.
So due to the price ceiling (limit) you are protected from any large future increases in the rent.
More generally, price ceilings are often part of a mortgage deal and applied to the annual percentage rate you are charged.
I hope that helps.
2006-09-04 06:51:58 · answer #3 · answered by Young Man 3 · 0⤊ 0⤋
The site below seems to explain it quite well.
Hope this helps. :-)
2006-09-04 06:44:34 · answer #4 · answered by Anonymous · 1⤊ 0⤋
be clear in your question.
2006-09-04 06:42:13 · answer #5 · answered by kummu 3 · 1⤊ 0⤋