Price-cap regulation

Price-cap regulation is when someone tells a company how much they can charge for something. Imagine you have a lemonade stand and your mom says you can't charge more than 50 cents for a cup of lemonade. This is like price-cap regulation.

Now, imagine a really big company that sells something that everyone needs, like electricity or gas for your house. These companies are often monopolies, which means they are the only ones selling this thing and you can't go anywhere else. This is important because if they charge too much, you have to pay it because you don't have any other choice.

So, to make sure these companies don't charge too much, the government sets a price cap. It's like a rule that says the company can't charge more than a certain amount for their product or service. The company still wants to make money, so they will try to keep their costs low so they can make a profit while still following the price cap.

If the company wants to charge more, they have to ask the government for permission. The government will only say yes if the company can show that they need to charge more to cover their costs or make improvements.

So, in summary, price-cap regulation is when the government tells a company how much they can charge for their product or service to make sure they don't charge too much and take advantage of people who can't go anywhere else for that thing.