The maximum price ceiling is the maximum price that a vendor can charge, as set by law or by the government.
In order to protect the welfare of the poorest and more vulnerable members of society, the government usually sets this maximum price substantially below the equilibrium price.
For example, the Indian government sets a price cap on wheat, rice, sugar, and other essential items.
Consequences:
Excess demand- Because the price is artificially lowered, demand is disproportionately higher than supply. As a result, the problem of excess demand arises.
Increases Welfare- The installation of a price ceiling guarantees that basic necessities are within reach of the impoverished. This protects and improves the well-being of the poor and vulnerable in society.
Fixed Quota- Each customer receives a set amount of goods (as per the quota). The quantity frequently falls short of the individual’s needs. This exacerbates the problem of scarcity, leaving the customer unhappy.
Final answer:
Hence, the maximum price that a vendor can charge, as set by law or by the government is called the maximum price ceiling and its three main implications are excess demand, increased welfare, and fixed quota.