If a price ceiling is set above the equilibrium price,then

A) prices will fall as soon as the ceiling price is abolished.
B) prices will remain the same (not rise) when the price ceiling is lifted.
C) equilibrium price and ceiling prices are two totally different concepts and hence do not affect each other.
D) prices will begin to rise rapidly when the price ceiling is lifted.

Question

Valerie Gonzalez · Accepted Answer

Final Answer : B, Explanation :  If a price ceiling is set above the equilibrium price, then the market will naturally settle at the equilibrium price. When the price ceiling is lifted, prices will not rise immediately to the ceiling price because the equilibrium price is lower. In fact, prices may not increase at all, as the market may continue to operate at the equilibrium price without interference. Therefore, option B is the correct choice.

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