Government intervenes, when market equilibrium which is decided by market forces of demand and supply, are unfavourable to society, to introduce control price, which is explained as price control policy.

• Implementing a maximum price legally is termed maximum price ceiling.
• If the maximum price is to be effective it should be lower than equilibrium price.
• Implementing a maximum price ceiling can be illustrated using a following
  diagram.

The following consequences can result from with maximum price policy.

• Shortage of goods.
• Non price rationing
• Creation of a black market price
• Creation of a economic inefficiencies

The following diagram illustrates a how black market occurs with maximum price policy.

C+E = Loss of economic surplus
P2 = Black market price

The following diagram illustrates how economic inefficiencies occur with
maximum price policy

Economic surplus before price ceiling A+B+C+D+E+F.

After price ceiling policy consumer surplus is only A. and producers surplus is only F.

After implementing maximum price ceiling policy economic, surplus of C+E is a loss to society.
If consumer does not have to pay an extra amount to purchase scarce goods except A,B and D will be added to consumer surplus.

The following methods can be shown to clarify maximum price.

• Rationing
• Imports
• Incentives for the production.

Non price rationing measures can be illustrated as follows

• Queues
• Use of ration cards
• Rationing with bribes
• Distribution is connected with other goods.

•  Goods can be imported as a solution for the shortage created in market as the result of a
  price control policy.
•  Minimum price is explained as the price which is implemented higher than equilibrium
  price to give a better price for producer and factor owners.
•  If minimum price is implemented lower than equilibrium price, the objectives of minimum
  price policy cannot be obtained.

Minimum price implementation can be illustrated with the following diagram.

• The following consequences can occur in the market with minimum price policy.
•  Excess supply or surplus of supply.
•  Unemployment can occur when minimum price is implemented in the labour market.
•  Excess investment situation can occur.
•  Goods can be supplied to consumers at discounted rates by keeping minimum price as
  nominal price.

 Welfare effects of minimum price policy can be illustrated with the following diagram

When implementing minimum price consumer surplus, producer surplus will be
changed.

The following steps can be taken to clarify minimum price.

• Hoarding excess supply
• By products
• Promoting demand.
• Exports

Government can implement a price support policy with minimum price to give a higher income to producers

• after implementing minimum price policy, it market supply is limited to Q
  2,the welfare loss to society will be B and C
• If the producer decides to expand the market supply up to Q1 after implementing minimum price policy the welfare loss the society cannot be assured.
• If the producer decides to expand market supply to Q1 after implementing minimum price policy and if the government purchases the excess supply the welfare loss to society will be B+C+E+F+G