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UNIT – 4�� SIMPLE APPLICATIONS � OF� DEMAND AND SUPPLY

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GOVERNMENT INTERVENTION � IN THE MARKET

It is true that under perfect competition market equilibrium is determined by the market forces i.e. Market demand and Market supply but sometime government also do intervention in the commodity market to influence the price of certain commodities .Welfare is the motive behind this intervention .

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TOOLS OF GOVT. INTERVENTION

  • Price Ceiling
  • Price Floor

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CONCEPT OF PRICE CEILING

MEANING OF PRICE CEILING

Price Ceiling means maximum price of a

commodity that the seller can charge from the

buyers.Often, the government fixes this price

lower than the equilibrium market price of a

commodity,so that the poor can afford to buy

it.

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Ceiling price is lesser than the equilibrium market price.

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MERITS OF PRICE CEILING

  • Welfare oriented
  • Helpful for weaker section
  • Ensure the regular supply of essentials

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CHALLENGES TO PRICE CEILING

  • Low quality of products
  • Black marketing
  • Unfair enrolment
  • Limited facilitation

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CONCEPT OF PRICE FLOORING

MEANING OF PRICE FLOORING

Floor price is the minimum price of a commodity,as fixed by the government.Often,this is higher than the equilibrium price of the commodity.Nobody in the market can buy the product at a price lower than the floor price.Ofen this is equated with the support price.

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Floor price is higher than the equilibrium market price.

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MERITS OF PRICE FLOORING

  • Welfare oriented
  • To motivate the producers by ensuring the

fair price of their products

  • Procurement of products to meet adverse

situations

​

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CHALLENGES TO PRICE FLOORING

  • High storage cost
  • Very less purchase by the traders
  • Short life span

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ODD CASES

Few cases prevails in the market where change in one component occur whereas other component remain Inelastic.On the other hand ,sometime change in one component occur whereas other component remain perfectly elastic so such kind of changes also influence marketing equilibrium, market price and market quantity.These cases happen due to those factors that influence market demand and market price other than own price of the commodity.

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PERFECTLY ELASTIC DEMAND AND � SHIFT IN SUPPLY

In this situation- Price remain constant. �Quantity shift rightward from OQ to OQ1.�Market equilibrium shift rightward from point E to E1.

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In this situation- Price remain constant. �Quantity shift leftward from OQ to OQ2.�Market equilibrium shift leftward from point E to E2.

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PERFECTLY INELASTIC DEMAND � AND SHIFT IN SUPPLY

In this situation- Quantity remain constant. �Price shift leftward from OP to OP1.�Market equilibrium shift leftward from point E to E1.

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In this situation-�Quantity remain constant. �Price shift rightward from OP to OP2�And Market equilibrium shift rightward from E to E2.

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PERFECTLY ELASTIC SUPPLY AND � SHIFT IN DEMAND

In this situation- Price remain constant. �Quantity shift rightward from OQ to OQ1.�Market equilibrium shift rightward from point E to E1.

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In this situation- Price remain constant. �Quantity shift leftward from OQ to OQ2.�Market equilibrium shift leftward from point E to E2.

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PERFECTLY INELASTIC SUPPLY AND � SHIFT IN DEMAND

In this situation- Quantity remain constant. �Price shift rightward from OP to OP1.�Market equilibrium shift rightward from point E to E1.

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In this situation- Quantity remain constant. �Price shift leftward from OP to OP2.�Market equilibrium shift leftward from point E to E2.

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THANKYOU �

EFFORTS BY

SAROJ KUMARI

PGT ECONOMICS

JNV JALANDHAR