Question

Suppose the government has imposed a price ceiling on cellular phones. Which of the following events could transform the price ceiling from one that is binding to one that is not binding? A. technological advance makes cellular phone production less expensive. B. Traditional land line phones become more expensive. C. The components used to produce cellular phones become more expensive. D. Cellular phones become more popular.

Answer 1

The correct answer is option A.

Step-by-step explanation:

A price is ceiling the maximum price limit fixed by the government. A price ceiling is considered binding when it is fixed below the equilibrium price.

When the price ceiling is fixed above the equilibrium price, it is nonbinding.

Technological advancement may cause the cost of production to decrease, this will increase the supply of a product. As the supply increases, the price gets reduced.

If the decrease in equilibrium price is such that it becomes lower than the price ceiling, then the price ceiling will become nonbinding.