A legal price ceiling, if it is binding, is a
A) maximum price, above equilibrium, which price is not allowed to exceed.
B) maximum price, below equilibrium, which a price is not allowed to exceed.
C) any maximum price which price is not allowed to exceed.
D) minimum price, above equilibrium, which price is not allowed to fall below.
E) minimum price, below equilibrium, which price is not allowed to fall below.

Question

Quizplus · Accepted Answer

A legal price ceiling is a maximum price that a good or service can be legally sold for. In order for it to be binding, it must be set below the equilibrium price (the market-clearing price). This means that if the price ceiling is set above the equilibrium price, it will have no effect since the market will naturally settle at the equilibrium price. Therefore, a legal price ceiling that is binding is a maximum price below equilibrium, which a price is not allowed to exceed.

A Legal Price Ceiling, If It Is Binding, Is a