Asked by Maritza Cabrera on May 27, 2024
Verified
A price ceiling is always a binding price control, whereas a price floor may be either binding or not binding.
Price Ceiling
is a government-imposed limit on how high a price can be charged for a product, good, or service.
Price Control
Government regulations that set the maximum or minimum prices for specific goods and services to control inflation or ensure affordability.
Binding
A condition, especially in legal or contractual contexts, that obliges entities to act according to the terms of an agreement or rule.
- Understand the concept and implications of price ceilings and floors in markets.
Verified Answer
ZR
Ziare RobertsonMay 29, 2024
Final Answer :
False
Explanation :
A price ceiling is binding if it is set below the equilibrium price, causing a shortage. However, if it is set above the equilibrium price, it is not binding and has no effect. Similarly, a price floor is binding if it is set above the equilibrium price, causing a surplus, but if set below, it is not binding. Both types of price controls can be either binding or not binding depending on their relation to the equilibrium price.
Learning Objectives
- Understand the concept and implications of price ceilings and floors in markets.