Can you think of any commodity on which price ceiling is imposed in India? What may be the consequence of price-ceiling?
Price ceiling is generally imposed on necessary items in India, such as wheat, rice, kerosene, and sugar. The government fixes an upper limit on the price of these goods below the market-determined price so that they are affordable for the population.
The imposition of a price ceiling often leads to excess demand in the market as the price is fixed below the equilibrium level. When accompanied by rationing, it creates adverse consequences for consumers. They have to stand in long queues to buy goods from ration shops.
Additionally, since the quantity provided at fair price shops does not satisfy all consumers, some are willing to pay higher prices for the good. This situation results in the creation of a black market.
Explanation
The answer is derived from Section 5.2.1 of the textbook. The text explicitly lists wheat, rice, kerosene, and sugar as commodities on which price ceilings are imposed. Regarding consequences, the text explains that price ceilings create excess demand. It further details that when accompanied by rationing, consumers face long queues and the dissatisfaction with the limited quantity leads to the emergence of black markets.