Read the passage carefully and answer the questions based on the passage:

Concept of Price Ceiling

It is not very uncommon to come across instances where the government fixes a maximum allowable price for certain goods. The government-imposed upper limit on the price of a good or service is called a price ceiling. A price ceiling is generally imposed on necessary items like wheat, rice, kerosene, sugar etc. The objective of the price ceiling is to restrict the price of a good so that it becomes affordable for consumers to buy. However, it does not always generate the desired results. Most of the time, intervention by the government in the form of a price ceiling leads to various socio-problems. 

In order to be effective, the price ceiling should be determined ______.

Below the market determined price.

The correct answer is Option (1) → Below the market determined price.

price ceiling is the maximum legal price that can be charged for a good or service.

• If it is set above the market price, it has no effect, because the market price is already lower.

• If it is set below the market price, it becomes binding — sellers cannot charge more than the ceiling, leading to shortages or excess demand.

Therefore, to be effective, a price ceiling must be fixed below the market-determined price.