If the government removes a binding price ceiling from a market, then the price paid by buyers will

If the government removes a binding price ceiling from a market, then the price paid by buyers will

1: increase, and the quantity sold in the market will increase.

2: decrease, and the quantity sold in the market will decrease.

3: increase, and the quantity sold in the market will decrease.

4: decrease, and the quantity sold in the market will increase.

Answer: 1: increase, and the quantity sold in the market will increase.

The elimination of the ceiling price at which purchasing is allowed lets the pricing adjust to the equilibrium determined by the market forces of supply and demand to the free system of pricing. The removal of the price ceiling makes the buyer to pay a more higher price but at the same time the market suppliers get the incentive to hike the quantity of supplied commodity. Consequently, costs that buyers are supposed to bear will go up along with the sales in the market, which ultimately brings the market to the equilibrium point where supply equals demand.