What are the functions of price and price controls ? Concept Introduction: Rationing - It is the equitable allocation of scarce resources, goods and services through the market price mechanism or government decree. Price rationing - Scarcity is directly proportional to the demand-supply gap. Higher the demand, given the scarcity of the good, higher will be the price. High price discourages demand and goods are rationed according to the ability and willingness to pay . Non-Price rationing - When prices are below or above the market clearing price, by the law of moral suasion, non-price rationing is used to ration goods among end users. Queue rationing and allocation schemes are examples of non-price rationing. Price Control - It is the regulation established by the governments on the market prices of goods or services in the form of prices ceiling or price floors . This is the government mandated minimum or maximum prices for goods. This is done primarily to ensure economic stability or producer/consumer welfare. Price ceiling - It is the maximum price that can be charged for a good/service as determined by law or government decree. Price Floor - It is the minimum price that can be paid for a good/service as determined by law or government decree.

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Chapter 4, Problem 4.4SC

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What are the functions of price and price controls?

Concept Introduction:

Rationing- It is the equitable allocation of scarce resources, goods and services through the market price mechanism or government decree.

Price rationing- Scarcity is directly proportional to the demand-supply gap. Higher the demand, given the scarcity of the good, higher will be the price. High price discourages demand and goods are rationed according to the ability and willingness to pay.

Non-Price rationing- When prices are below or above the market clearing price, by the law of moral suasion, non-price rationing is used to ration goods among end users. Queue rationing and allocation schemes are examples of non-price rationing.

Price Control- It is the regulation established by the governments on the market prices of goods or services in the form of prices ceiling or price floors. This is the government mandated minimum or maximum prices for goods. This is done primarily to ensure economic stability or producer/consumer welfare.

Price ceiling- It is the maximum price that can be charged for a good/service as determined by law or government decree.

Price Floor- It is the minimum price that can be paid for a good/service as determined by law or government decree.

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