Read the following statements carefully.
Statement 1: Price ceiling is maximum price of a product set at level above the equilibrium price.
Statement 2: Government uses price ceiling to set the prices of non-essential commodities.
Answer & explanation
Correct answer: option 2
The correct answer is Option 2: Both the statements are false.
Statement 1: False
- Price ceiling is a maximum price set by the government below the equilibrium price, not above.
- It is imposed to make essential goods affordable to consumers.
- If the price ceiling were above equilibrium, it would have no effect because market forces would naturally set the price lower.
Statement 2: False
- The government imposes price ceilings on essential commodities like food, medicines, and rent to prevent excessively high prices.
- Non-essential commodities do not usually have price ceilings because the government does not regulate their prices.