Price ceiling is a adjustment set by the government that makes it illegal to charge a price higher than a specific level. The application of a price ceiling allows consumers to purchase items that were previously unaffordable at a higher price. Price ceiling often impose to protect the benefits of the consumers.
It has no effect on the market if the price ceiling is set above the equilibrium price as it did not lower the price of goods for the consumer. Therefore, price ceiling is often set below the equilibrium price.
On the other hand, price floor is a adjustment set by the government that makes it illegal to trade at a price lower than a specified level. The implementation of price floor is to protect the benefits of producers of unproductive sectors.
Normally, price floor is set above the equilibrium price. If the price floor is set below it, it has no effect on the market as it did not help the producers to earn more profit.
When government set the price ceiling and price floor, shortage and surplus happen permanently.
Based on the link of the article below, the government of our country, Malaysia had set a price ceiling for the price of petrol in the year 2008.
"We are aware when diesel price increases, it will take a toll on public transport and lorry operators. Nevertheless, they cannot raise fares to their whims," Domestic Trade and Consulmer Affairs Minister Datuk Shahrir Abdul Samad said.
Petrol is the main resources for transportation, people need petrol to travel around with their motor vehicles. The objective of setting this price ceiling is to protect and lighten the burden of consumers. For example, when petrol price increase, the bus drivers and lorry operator can not raise fares. The increase in the price of petrol had burden them financially. Therefore, the government had set a price ceiling for petrol to remain at the price of RM2.70 per litre until the end of year 2008.
Other than setting the price ceiling, the government also gave out cash rebate to cars and motor vehicles owner. These rebates purpose is to support the people with lower incomes.
Written by: Lian Vickki 0315648
Resources: http://www.themalaysianinsider.com/malaysia/article/Petrol-ceiling-price-to-remain-at-RM2.70-until-year-end-says-Shahrir
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