Economics Perfect Competition Questions
In perfect competition, a price ceiling refers to a government-imposed maximum price that can be charged for a particular good or service. It is set below the equilibrium price determined by the market forces of supply and demand. The purpose of a price ceiling is to protect consumers by ensuring that the price of a good or service remains affordable and does not exceed a certain level. However, in perfect competition, where there are many buyers and sellers, a price ceiling can lead to various consequences. It may create a shortage of the good or service, as suppliers are unable or unwilling to provide it at the artificially low price. Additionally, it can result in a decrease in quality or a reduction in the availability of the product, as producers may cut costs to compensate for the lower price.