An effective price ceiling must be set
A) above the equilibrium price.
B) below the equilibrium price.
C) at the equilibrium price.
D) either at or above the equilibrium price.

Question

Quizplus · Accepted Answer

An effective price ceiling, which is a legal maximum price that can be charged for a good or service, must be set below the equilibrium price. This is because if it is set at or above the equilibrium price, it would not be binding and would have no effect on the market price or quantity. Setting it below the equilibrium price makes it effective by capping the price at a level lower than what the market would naturally set, potentially making the good or service more affordable to consumers but also possibly leading to shortages.

An Effective Price Ceiling Must Be Set