Question

Suppose that the market equilibrium price for a good is $1.00. A binding price ceiling in this market will result in a price set. Choose one:

A. below $1.00.
B. above $1.00.
C. at $1.00.
D. More information is needed to determine the answer.

Answer 1

Option (a) is correct.

Step-by-step explanation:

A binding price ceiling occurs when the government of a nation sets the price for a particular good at a below level than the equilibrium price. This price level binds the market for charging any other price from the consumers and because of this binding price ceiling, the demand for goods increases by the consumers. But suppliers reduces the supply of the goods because of the lower profit obtained from selling the goods.