When government imposes a price ceiling or a price floor in a market,

Question

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When the government imposes a price ceiling or a price floor, it distorts the market equilibrium and prevents the price from functioning as a rationing device. This leads to either a shortage (in the case of a price ceiling) or a surplus (in the case of a price floor). As a result, some consumers may be unable to purchase the good or some producers may be unable to sell their goods. This reduces overall efficiency in the market and can lead to deadweight loss. Moreover, buyers and sellers do not necessarily become better off under a price ceiling or a price floor; some buyers may benefit from lower prices, but producers may suffer from lower revenues, and some sellers may benefit from higher prices, but consumers may suffer from higher costs.

When Government Imposes a Price Ceiling or a Price Floor