ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.

Detailed explanation-2: -A price ceiling above the competitive equilibrium price will result in a surplus. A price ceiling below the competitive equilibrium price will result in a shortage.

Detailed explanation-3: -Price ceiling refers to the mechanism by which the price for a good is prevented from rising to a certain level. In contrast to that, price floor is the mechanism by which the price of a good is prevented from falling below a certain level.

Detailed explanation-4: -A pricing ceiling is nothing more than a legal limit. The term “equilibrium” refers to the state of affairs in the economy. People may or may not follow the price ceiling, thus the actual price may be at or above it, but the price ceiling has no effect on the equilibrium price.

Detailed explanation-5: -Therefore, the correct option is b, price ceilings cause goods to be rationed by some other means than legally determined market prices.