Price Ceiling on the Economy of Greece

[Name of the Professor]

Price Ceiling on the Economy of Greece

Introduction

The term price ceiling refers to imposition charged by the government for the maximum price which a seller can charge for a product. The main aim of imposing a price ceiling is to ensure that fair business practices is being promoted. Price ceilings are usually levied on essential expenditures such as rent ceilings to ensure that renters of the land don't overcharge others and hinder the growth of businesses. Economist widely criticized price ceilings due to its ineffectiveness in promoting the market mechanism. One such criticism comes from economist when they say that price ceilings won't have much of an impact if the good's equilibrium price is below the price of the ceiling. This often results in an imposition of deadweight loss imposed on the society. The other charges against it comes from the formation of black markets, the time it takes for searching, fees incurred which comes as an addition but is not a part of the sales generated (Weisenthal, 2012).

Discussion

Price Ceilings in Greece

On 5 May 2012, the government imposed price ceilings in 13 prefectures for the category of unleaded petrol, which didn't had any expiration date attached to it. For the first time ever in Greece a price ceiling has been levied on the wholesales unleaded prices. The items which have been affected by this price ceiling includes the Cyclades Island which stands at 1.724 for a liter, Corfu which has had a ceiling of 1.765, Chios whose price ceiling stands at 1.739 and other petroleum items. Recently the price of the gasoline has surged to 2 Euro's per liter at a gas station located at Karpathos, while the nationwide average for the gasoline hovers around more than 1.8 Euros.

The government in this case is watching the situation with high diligence, but for now price ceilings hasn't been imposed yet. The reasons given are that the rise in prices cannot be associated with excessive profits being made by the gas stations. The violations on account of fair competition practices has been highlighted in only some parts of Greece, so the government has refrained from any actions for now.

Recently a bill has been passed by the Government for imposing price ceilings on a number of basic commodities. The bill by the name “Fixing price ceilings” for both the retail and wholesale in the matter of special cases, referred as Law of 2011. This act gives Government the hold of imposing price ceilings on items comprising of whole milk, electricity, Packaged Water, Coffee etc. The commerce minister has been bestowed with the authority to levy the price ceilings on these items for up to 45 days. Later electricity also came under the price ceiling items, as the cost of electricity has a major impact on consumer purchases.

Graphical Representation

Impact of price ceiling imposed by Government over equilibrium price level

When the government levies price ceiling above the equilibrium price, it does not create an ...