Question

A price ceiling is

a. often imposed on markets in which “cutthroat competition” would prevail without a price ceiling.

b. a legal maximum on the price at which a good can be sold.

c. often imposed when sellers of a good are successful in their attempts to convince the government that the market outcome is unfair without a price ceiling.

d. All of the above are correct.

Part B.

In a given market, how are the equilibrium price and the market-clearing price related?

a. There is no relationship.

b. They are the same price.

c. The market-clearing price exceeds the equilibrium price.

d. The equilibrium price exceeds the market-clearing price.

Answer 1

A price ceiling is a legal maximum price set at which a good can be sold. It is effective when the price ceiling is set below the equilibrium price. It is set by the government, so that the goods don’t become unreasonably expensive and more and more people can afford it.

So option B is the correct answer.

Part B)

By market clearing, we mean that there is neither any surplus of goods in the market nor there is any scarcity of goods. This means that the quantity demanded of the good will be equal to the quantity supplied. The price at which market clears is called the market clearing price.

We know that at the equilibrium price also the quantity demanded of the good is equal to the quantity supplied. From this , we can say that market clearing price is equal to the equilibrium price.

So these both are the same price. So option B is the correct answer.