Suppose Kate lives in a community with no price controls.What could she expect will happen if her town borders a community where there is a nonbinding price ceiling on most products?
A) Legal market prices will rise in the community with a binding price ceiling.
B) Legal market prices will fall in the community with a binding price ceiling.
C) The price and the quantity sold in the community without a nonbinding price ceiling will be the same as the price and quantity in the community with a nonbinding price ceiling.
D) There will be more shortages in the community with a binding price ceiling.
E) The black market in the community with a binding price ceiling will not be strong because consumers will simply purchase the product in the community that has no price ceiling.

Question

Quizplus · Accepted Answer

A nonbinding price ceiling is set above the equilibrium price, meaning it does not affect the market. Therefore, prices and quantities in both communities would be similar as the nonbinding price ceiling has no real effect on the market dynamics.

Suppose Kate Lives in a Community with No Price Controls