Price Ceiling January 11, Price Ceiling Price ceiling is implemented in a bid to avoid consumer exploitation by ensuring that the basic commodities are available at affordable prices. In the oil industry, the prices have been sky rocketing thus adversely affecting the economy. This is mainly because it constitutes a significant percentage of energy sources. In the implementation of price control, consideration on the cause of rise in fuel prices should be considered. In some instances, the main cause of the rise in the prices is the shortage in supply. Under such circumstances, price ceiling is not a solution.
As such, increasing production and use of other alternative sources of energy could be the ultimate solution (Whittington & Delaney, 2011). The forces of demand and supply determine the equilibrium point. As such if the price ceiling is above the equilibrium price, then it has no effect on the economy. When price ceiling is below the equilibrium price, adverse consequences such as supply shortage due to increased demand and reduced production as a larger group of the population will be able to purchase the commodity (McEachern, 2011).
Moreover lowering of quality in a bid to reduce production cost, discrimination, and the increased use of black market is evident (Arnold, 2010). Due to the shortage, queuing for the product is evident with the elderly and physically challenged being disadvantaged. This is usually addressed through rationing. When operating in the black market, the customers are not protected and therefore they could encounter violence or even theft (Mankiw, 2011). Thus, when the gasoline prices rises above $4 and the government places a price ceiling, consideration is necessary as if implemented for long could have adverse effects on the economyReferencesArnold, R.
A. (2010). Microeconomics. Stamford, Connecticut, USA: Cengage Learning. Mankiw, N. G. (2011). Principles of Microeconomics. Stamford, Connecticut, USA: Cengage Learning. McEachern, W. A. (2011). Macroeconomics. Stamford, Connecticut, USA: Cengage Learning. Whittington, O. R. & Delaney, P. R. (2011). Wiley CPA Examination Review, Outlines and Study Guides. Hoboken, New Jersey: John Wiley & Sons.