In Order to Be Binding, a Price Ceiling

question 140

Multiple Choice

In order to be binding, a price ceiling

• A)must lie above the free market equilibrium price.
• B)must lie below the free market equilibrium price.
• C)must coincide with the free market equilibrium price.
• D)must be high enough for firms to earn a profit.

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Definitions:

Utility Function

A function that captures the level of satisfaction or happiness that consumers derive from consuming various combinations of goods and services.

Initial Allocation

The initial distribution of goods, resources, or entitlements among individuals or groups before any trade or market exchange occurs.

Contract Curve

In economics, it is a curve that shows the set of mutually beneficial (efficient) allocations in a trade or exchange situation.

Edgeworth Box

A diagram used in microeconomics to show the distribution of resources and the optimal allocation between two individuals.