Question

Assume the market is competitive and the supply slopes up and the demand curves slopes down are (neither is entirely horizontal or vertical). Answer true/false/uncertain and explain: removing a binding price ceiling would increase quantity supplied, decrease quantity demanded and increase the price demander’s pay.

Answer 1

True

Explanation

Price ceiling is the maximum price that can be charged for a particular good or service. Government uses price ceilings in order to keep the price of some necessary good or service affordable. A Binding price ceiling is the one which is set below market equilibrium price. When the price ceiling is set below the market equilibrium price it will lead to excess demand or shortage of goods. As the binding price ceiling will be removed the economy will move back to equilibrium. As the price will increase producers find it profitable to Produce more which will increase the supply at the same time because of increase in the price consumers will demand less as the good became more expensive and it will discourage them to buy more.