For a price ceiling to be binding constraint on the market the government must set it ?
Correct answer: B. below the equilibrium price
- A. above the equilibrium price
- B. below the equilibrium price
- C. precisely at the equilibrium price
- D. at any price because all price ceilings are binding constraints
Explanation
A price ceiling binds only when it prevents the market from reaching equilibrium, which requires setting it below the equilibrium price. A ceiling at or above equilibrium does not restrict the market outcome.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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