With reference to "Price Ceiling", consider the following statements: 1. It is a government-imposed upper limit on the price of a good or service. 2. It is generally fixed above the market-determined equilibrium price. 3. It often leads to excess demand and shortages in the market. Which of the statements given above is/are correct?

The correct option is 1 and 3 only. Explanation A price ceiling is a form of government intervention in the market mechanism where a legal maximum price is established for a specific good or service. This policy is typically employed to make essential goods affordable for the general population. Statement-wise Analysis - Statement 1 is Correct: A price ceiling is defined as a government-imposed upper limit on the price that can be charged for a product. Sellers are legally prohibited from selling the good at a price higher than this limit. - Statement 2 is Incorrect: To be effective (binding), a price ceiling must be fixed below the market-determined equilibrium price. If the ceiling is set above the equilibrium price, it has no effect on the market because the market will naturally clear at the lower equilibrium price. - Statement 3 is Correct: When a price ceiling is set below the equilibrium price, the lower price stimulates an increase in the quantity demanded while discouraging production, leading to a decrease in the quantity supplied. This imbalance results in excess demand, commonly known as a shortage in the market. Key Takeaway Price Ceiling is a maximum allowable price set by the government. For it to impact the market, it must be set below the equilibrium price, which inevitably leads to excess demand (shortage).

NCERT Class 12 Economics — Chapter 2: Market Equilibrium

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With reference to "Price Ceiling", consider the following statements:

It is a government-imposed upper limit on the price of a good or service.
It is generally fixed above the market-determined equilibrium price.
It often leads to excess demand and shortages in the market.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A1 and 3 only
B1, 2 and 3
C2 only
D1 only

Did you get this right?

Solution

The correct option is 1 and 3 only.

Explanation

A price ceiling is a form of government intervention in the market mechanism where a legal maximum price is established for a specific good or service. This policy is typically employed to make essential goods affordable for the general population.

Statement-wise Analysis

Statement 1 is Correct: A price ceiling is defined as a government-imposed upper limit on the price that can be charged for a product. Sellers are legally prohibited from selling the good at a price higher than this limit.
Statement 2 is Incorrect: To be effective (binding), a price ceiling must be fixed below the market-determined equilibrium price. If the ceiling is set above the equilibrium price, it has no effect on the market because the market will naturally clear at the lower equilibrium price.
Statement 3 is Correct: When a price ceiling is set below the equilibrium price, the lower price stimulates an increase in the quantity demanded while discouraging production, leading to a decrease in the quantity supplied. This imbalance results in excess demand, commonly known as a shortage in the market.

Key Takeaway

Price Ceiling is a maximum allowable price set by the government. For it to impact the market, it must be set below the equilibrium price, which inevitably leads to excess demand (shortage).

Your note

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