Chapter 8, Problem 1MCQ

To determine

The correct statement about the price ceiling.

Explanation of Solution

A price ceiling is a method used by the government to set the price of a product or service in the market. Purchasing or selling that product below that price would be a punishable act.

The government usually sets the price ceiling below the equilibrium price to safeguard the interest of some consumers, but such price-controlling methods result in various types of inefficiencies in the market like inefficient allocation of sales, a persistent shortage of products, black-marketing, wastage of resources, and a temptation for corruption and bribery in the economy. Despite the various inefficiencies, the price ceiling benefits some consumers.

In New York City, the government sets a price ceiling on many food items after WWII to protect the interest of suppliers in the market.

Therefore, option “e” or “all of the above” is correct.