A price ceiling is a policy that:
A)will lead to a shortage if the policy is effective.
B)sets a minimum price in a market.
C)is effective only if the ceiling price is above the equilibrium price.
D)transfers surplus without creating any dead weight loss.

Question

Quizplus · Accepted Answer

A price ceiling sets a maximum price that can be charged for a good or service. If the ceiling price is set below the equilibrium price, it will create a shortage because the quantity demanded will exceed the quantity supplied at the lower price. Therefore, choice A is the correct answer. Choice B describes a price floor, not a price ceiling. Choice C is incorrect because a price ceiling must be set below the equilibrium price to have any effect. Choice D is incorrect because price ceilings create deadweight loss by reducing the quantity of goods or services exchanged in the market.

A Price Ceiling Is a Policy That