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1. In the case of a binding price ceiling, the price paid in the market will be:

ID: 1143079 • Letter: 1

Question

1. In the case of a binding price ceiling, the price paid in the market will be: more than the free market equilibrium price. less than the free market equilibrium price. equal to the free market equilibrium price. unable to be compared with the free market equilibrium price. 1. In the case of a binding price ceiling, the price paid in the market will be: more than the free market equilibrium price. less than the free market equilibrium price. equal to the free market equilibrium price. unable to be compared with the free market equilibrium price.

Explanation / Answer

In the case of a binding price ceiling, the price paid in the market will be: less than the free market equilibrium price.

Explanation: The government sets the binding price ceiling for a particular good in an economy. For binding price ceiling to be effective, it has to be below the equilibrium price ceiling. The reason is that the binding ceiling is set to ensure that consumers are not charged an exorbitant price for goods and services that are deemed as "necessity." If the binding price ceiling were above the equilibrium price, the objective of the government will not be served. Therefore, the binding price ceiling is always lower than the equilibrium price set by free markets.

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