If a price ceiling is to be binding or effective,it should be set

Question

Quizplus · Accepted Answer

Setting a price ceiling below the equilibrium price will create a situation where the quantity demanded exceeds the quantity supplied, resulting in a market shortage. This is because buyers are willing to buy more at the lower price, but sellers are not willing to supply as much due to the lower revenue they receive. This shortage will lead to non-price rationing mechanisms, such as long lines or first-come-first-served systems. Therefore, a binding price ceiling must be set below the equilibrium price to have an effect on the market.

If a Price Ceiling Is to Be Binding or Effective,it