Question

The government put a ceiling on the price that producers can charge for bread, allowing a maximum price of $2d per loaf. What are the possible effects of this action?

Answer 1

Ceiling prices can prevent prices from rising too fast.

Step-by-step explanation:

Governments can attempt to reduce price volatility thus establish a limit on the increase of prices in a market which are called ceiling prices. This prevents prices from rising too fast. The governments can store such goods in a buffer stock and release excess supplies onto the market to keep the price down. If surplus stocks are not released into the market, ceiling prices may lead to a shortage and black markets.