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Chapter 3: Problem 27

Does a price ceiling attempt to make a price higher or lower?

Short Answer

Expert verified
A price ceiling attempts to make the price lower than the potential market price without intervention, in order to protect consumers from high prices and increase affordability.

Step by step solution

01

Definition of Price Ceiling

A price ceiling is a government-imposed limit on how high a price can be charged for a good, service, or commodity. It is typically set to protect consumers from high prices, especially in situations where the demand for a product is high, and there is not enough supply to meet the demand.
02

Effect of Price Ceiling on Prices

The intention of a price ceiling is to make the price lower than what it would be without intervention. By setting a legal maximum price for the goods or services, governments aim to prevent prices from rising too high and becoming unaffordable for consumers. However, it's essential to note that if the price ceiling is set above the equilibrium price, it will have no effect on the market. In conclusion, a price ceiling attempts to make the price lower than the potential market price without intervention.

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