Which of the following best describes what sets the maximum legal price for a product in a market?

• A. A price floor established by producers
• B. The equilibrium price determined by supply and demand
• C. A price ceiling imposed by the government
• D. Consumer willingness to pay

Answer: (C)

Verified step by step guidance

1. Understand the concept of a price ceiling: it is a maximum legal price set by the government that sellers cannot exceed when selling a product.
2. Recognize that a price floor is the opposite concept, which sets a minimum legal price, usually established to protect producers, not to limit maximum prices.
3. Recall that the equilibrium price is the price at which the quantity demanded equals the quantity supplied, determined naturally by market forces without legal restrictions.
4. Note that consumer willingness to pay reflects the maximum price consumers are ready to pay, but it does not legally set the maximum price in the market.
5. Conclude that the maximum legal price for a product is best described by a price ceiling imposed by the government, as it legally restricts how high the price can go.