A price ceiling will have no effect if:
A) it is set above the equilibrium price.
B) the equilibrium price is above the price ceiling.
C) set below the equilibrium price.
D) it creates a shortage.

Question

Quizplus · Accepted Answer

A price ceiling is only effective if it is set below the equilibrium price. If it is set above the equilibrium price, then the market will naturally establish a price that is not affected by the price ceiling. Therefore, option A is correct. Option B is incorrect because if the equilibrium price is above the price ceiling, the price ceiling will create a shortage. Option C is incorrect because a price ceiling set below the equilibrium price will impact the market by creating a shortage, leading to other economic problems, and the decreased quantity supplied. Option D is incorrect because a price ceiling creates a shortage when it is set below the equilibrium price, and this in turn impacts the market, which then leads to consumers and producers adopting alternative measures to overcome the shortage.

A Price Ceiling Will Have No Effect If