Texas A&M University (TAMU) ECON202 Practice Exam 2

Question: 1 / 400

A price ceiling is defined as:

The lowest price allowed by law

The upper limit on the price of a good

A price ceiling is indeed defined as the upper limit on the price of a good. This governmental regulation restricts how high a price can be charged for a product, often implemented to ensure affordability for consumers during times of crisis or market fluctuations. When a price ceiling is set below the equilibrium price, it leads to a situation where the quantity demanded exceeds the quantity supplied, resulting in shortages.

This measure is typically enacted in markets where essential goods, such as housing or staple foods, are at risk of becoming unaffordable. By placing a cap on prices, the intention is to make essential services accessible to a larger population. Understanding this concept is crucial, as it helps to analyze various market dynamics and the effects of government intervention on supply and demand.

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The price at which supply and demand meet

The equilibrium price in a competitive market

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