Price Ceiling

In every business, the price of a commodity is one of the major factors that decide growth and expansion. In simple terms, price is the value attached to a commodity. In the process of buying or selling a product at a particular price, both seller and purchaser negotiate to benefit mutually, which is profitable for both parties. Price ceiling, a price control mechanism, is a crucial component of economics as it refers to the law suggested by the government for regulating fair prices in the economy. 

Concept of  Price Ceiling 

Price control can be described as a law that the government imposed for easy regulation of the prices of commodities. The price control comes in two different flavours. Firstly, the price ceiling cost ensures that the price of a commodity does not rise beyond a certain level; secondly, the price floor ensures that the commodity price does not fall beyond a certain level. Price ceiling can be easily understood by the concept of demand and supply. 

In our daily lives, words like demand and supply are pretty common, especially in the business world. The demand and supply play a significant role in determining the price of the commodity. Let’s study these in detail. 

Demand

In simple terms, demand refers to the desire of the customer to buy particular goods and services without any worry of paying the price set for them during a given time frame. Choices and preferences are the foundations of demand that can be easily described in terms of benefits, profit, cost, and other crucial variables. The amount of goods that the customer willingly buys is highly dependent on the cost of the commodity. There are mainly seven types of demand in the market. These include price demand, income demand, cross demand, direct demand, indirect demand, joint demand, and composite demand. 

Supply

The concept of supply can be understood by the commodity quantity that a seller is willing to sell at a particular price. The supply in the market is highly determined by factors such as production cost, taxes imposed, and the firm’s expectations. 

Difference Between Price Ceiling and  Price Floor 

Let’s briefly discuss the difference between price ceiling and price floor –

Concept of ‘Price’ in a Business 

Every time you visit a shop to buy anything, say clothes, you pay the price. We can define the price concept in marketing as any amount a person pays to attain a product, service, or idea. Product pricing is the most crucial step while starting and running a business, as every profitable organisation aims to earn maximum profit.  

The shopkeeper attaches the tag to the item that the potential customer is willing to pay while keeping a certain margin simultaneously, which leads to growth and development in the future. Apart from this, the seller considers numerous other approaches while deciding the price of a commodity. These aspects are as follows:

• The cost accountability 

• The competition prevailing in the market 

• The expectations of customers from the product

The “right pricing policy” highly influences the success of the business. It is a guideline decided by top-level managers for achieving exceptional product sales.

Factors Influencing  Price 

Many factors, directly and indirectly, influence the pricing decisions of the product in the marketing mix. These factors are as follows- 

• Organisational factors 

• Marketing mix 

• Product differentiation 

• Product cost 

• The demand for the product 

• Competition in the market 

• The product supply

Conclusion 

The price ceiling is mainly concerned with the price control mechanism, which is a crucial component of economics as it refers to the law suggested by the government for regulating fair prices in the economy. 

This article discusses the price ceiling in the market, which is highly determined by the demand and supply of goods and services. In this article, we studied the concept of the price ceiling in length along with the demand and supply of goods. We covered several other topics, such as the difference between price ceiling and price floor.