To have an effect on the market price, price ceilings must be set above the equilibrium price.

Question

Quizplus · Accepted Answer

Price ceilings set below the equilibrium price can create shortages and have an effect on the market, but to have a direct impact on the market price, price ceilings must be set above the equilibrium price. This is because a price ceiling set below the equilibrium price will not have any effect on the actual market price, as the market price is already below the ceiling. However, if the price ceiling is set above the equilibrium price, it will force the market price down to the ceiling, creating an artificial price that is lower than the market would have set on its own.

To Have an Effect on the Market Price, Price Ceilings