Answered: A binding price ceiling will a.…

A binding price ceiling will a. result in a product shortage. b. result in a product surplus. c. induce new firms to enter the industry. d. clear the market.

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter3: Market Demand And Supply

Section: Chapter Questions

Problem 10SQP

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Question

A binding price ceiling will

a. result in a product shortage.

b. result in a product surplus.

c. induce new firms to enter the industry.

d. clear the market.

Video Definition Video Definition Government regulation setting a maximum price a business may charge for a given good or service. A price ceiling itself does not cause demand or supply to change. It is simply a mechanism used to set a price that can be legally charged in the market. Price ceilings are often implemented during times of crisis to avoid price gouging.

Expert Solution

Step 1

The price ceiling refers to a maximum-price that can be charged on a good service in the market, which is fixed by the government. A binding price ceiling happens when the government sets a required price on a good at a price below equilibrium, which foils an increase in the price of that good or service above the binding level.

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