In order to be effective, a price ceiling
A) must be set above equilibrium price.
B) must be set below equilibrium price.
C) must be set at equilibrium price.
D) must be a zero price.

Question

Quizplus · Accepted Answer

A price ceiling that is set above the equilibrium price will have no effect on the market, as the market is already willing to pay the equilibrium price. A price ceiling that is set at equilibrium price has no impact, as the market is already operating at that level, and a price ceiling that is set at a zero price is not practical, as it implies goods or services are given away for free. Therefore, a price ceiling must be set below the equilibrium price in order to be effective and to create an impact on the market.

In Order to Be Effective, a Price Ceiling