Which statement about price ceilings is correct?
A) Whether a price ceiling is placed below or above the equilibrium price, it will always cause deadweight loss.
B) A price ceiling will only cause deadweight loss if it is placed above the equilibrium price.
C) A price ceiling will only cause deadweight loss if it is placed below the equilibrium price.
D) Whether a price ceiling is placed below or above the equilibrium price, it will always cause a shortage of the good.

Question

Quizplus · Accepted Answer

A price ceiling placed below the equilibrium price will cause shortages as quantity demanded exceeds quantity supplied. This inefficient allocation of resources leads to deadweight loss. However, if the price ceiling is above the equilibrium price, it will not affect the market as there is already an excess supply of the good. Therefore, a price ceiling will only cause deadweight loss if it's placed below the equilibrium price, making option C the correct option.

Which Statement About Price Ceilings Is Correct