True of Fase? If the demand increased enough, the price ceiling could become non-binding.

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The question asks about the behavior of a price ceiling when demand changes. 
Option 1: True. If someone says the price ceiling could become non-binding after demand increases, this would imply that the ceiling rises above the new equilibrium price as demand grows. However, when demand increases, the equilibrium price typically rises as well. Since a price ceiling is binding whenever its level is below the market-clearing price and non-binding only when it is at or above that price, a higher equilibrium price makes it less likely for a fixed ceiling to become non-binding. In fact, a higher demand tends to keep or make the price ceiling more likely to be binding, not less. Therefore, this statement is not correct, and claiming that a higher demand makes the ceiling non-binding would be a misinterpretation of how binding constraints interact with shifts in demand.

Option 2: False. With an increase in demand, the market-clearing price tends to rise. A price ceiling, which sets an upper limit on price, becomes non-binding only if the ceiling is at or above the new market-clearing price. Since the new equilibrium price is higher after a demand increase, the fixed ceiling is not automatically lifted above it; it may still be binding. Thus, the proposition that demand could increase to the point where the ceiling becomes non-binding is not generally correct, given a fixed ceiling level. This aligns with standard microeconomic reasoning about binding vs. non-binding price controls when demand shifts.

QAMO 2010-004 Fall 2025 Unit 9: Welfare Economics -- Application Problem

True of Fase? If the demand increased enough, the price ceiling could become non-binding.

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Similar Questions

In this market, there will be excess demand of 39 . Ironically, the amount of natural gas used with the price ceiling will be less than the natural gas used if the price was allowed to rise to the market level.

True or False? if supply increased enough, the price ceiling could become non-binding.

假设香蕉的均衡价格为 5 美元，并实施 7 美元的价格上限。这将导致：

Figure 6-2 Refer to Figure 6-2. The price ceiling causes quantity

A price ceiling is

A binding price ceiling hurts all producers who would have sold the good in a perfectly competitive market

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QAMO 2010-004 Fall 2025 Unit 9: Welfare Economics -- Application Problem

True of Fase? If the demand increased enough, the price ceiling could become non-binding.

View Explanation

Log in for full answers

Similar Questions

In this market, there will be excess demand of 39 . Ironically, the amount of natural gas used with the price ceiling will be less than the natural gas used if the price was allowed to rise to the market level.

True or False? if supply increased enough, the price ceiling could become non-binding.

假设香蕉的均衡价格为 5 美元，并实施 7 美元的价格上限。这将导致：

Figure 6-2 ​ Refer to Figure 6-2. The price ceiling causes quantity

A price ceiling is

A binding price ceiling hurts all producers who would have sold the good in a perfectly competitive market

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Figure 6-2 Refer to Figure 6-2. The price ceiling causes quantity