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Chapter 4: Q10 (page 104)

A price ceiling will have the largest effect:

a. substantially below the equilibrium price

b. slightly below the equilibrium price

c. substantially above the equilibrium price

d. slightly above the equilibrium price

Short Answer

Expert verified

Price Ceiling will have the largest effect, when set substantially below equilibrium price.

Step by step solution

01

Price Ceiling Concept 

Price Floor is maximum mandated sale price, at which a good is allowed to be sold, by regulatory body.

For ex : Maximum medicine sale price imposed.

02

Detail Explanation

Price Ceiling is imposed to protect the interests of buyers, protect them from exploitation.

It is binding if ceiling price is set below the free market equilibrium price. More the ceiling price is below free market equilibrium price, larger will be its effect.

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Most popular questions from this chapter

Under what circumstances would a minimum wage be a nonbinding price floor? Under what circumstances would a living wage be a binding price floor?

Select the correct answer. A price ceiling will usually shift:

a. demand

b. supply

c. both

d. neither

If a usury law limits interest rates to no more than 35%, what would the likely impact be on the amount of loans made and interest rates paid?

Would usury laws help or hinder resolution of a shortage in financial markets?

Select the correct answer. A price floor will usually shift:

a. demand

b. supply

c. both

d. neither

Illustrate your answer with a diagram.
See all solutions

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