Answer:
Price ceiling is the legislated or government imposed maximum level of price that can be charged by the seller. Since the imposition of the equilibrium price (\[O{{P}_{e}}\]) thus the imposition of the price ceiling leads to excess demand as shown in the diagram below.
The following are the consequence and effect of price ceiling.
Excess demand: Due to artificially lowering the price, the demand becomes comparatively higher than the supply. This leads to the emergence, of the problem of excess demand.
Enhances welfare: The imposition of the price ceiling ensures the access of the necessity goods within die reach of the poor people. This safeguards and enhances the welfare of the poor and vulnerable sections of the Society.
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.
Inferior goods: Often it has been found that the goods that are available at the ration shops are usually inferior goods and are adulterated and infiltrated.
Black marketing - The needs of a consumer remain 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.
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