Question

If the government removes a binding price ceiling from a market, then the price received by sellers will a. decrease, and the quantity sold in the market will decrease. b. decrease, and the quantity sold in the market will increase. c. increase, and the quantity sold in the market will decrease. d. increase, and the quantity sold in the market will increase.

Answer 1

The correct answer is option d.

Step-by-step explanation:

A price ceiling is binding when it is fixed below the equilibrium price. In this case, the quantity demanded is greater than quantity supplied. This creates a shortage in the market.

If the government removes a binding price ceiling from a market, then the price will increase. At a higher price, the producers will supply more, while the quantity demanded will decrease. The overall quantity sold in the market will increase.