When the government institutes a binding "price ceiling" (or maximum legal price), which of the following is generally the result?

A. We end up with too much of the good being produced, because quantity demanded is greater than quantity supplied.
B. Consumers tend to be very happy, because they all enjoy the good at a now lower, more reasonable price.
C. We end up with a shortage, because quantity demanded is greater than quantity supplied.
D. Producers end up being better off, because they can now each sell more at this new government-mandated lower price.

Question

02-08-2024
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Answered

When the government institutes a binding "price ceiling" (or maximum legal price), which of the following is generally the result?

A. We end up with too much of the good being produced, because quantity demanded is greater than quantity supplied.
B. Consumers tend to be very happy, because they all enjoy the good at a now lower, more reasonable price.
C. We end up with a shortage, because quantity demanded is greater than quantity supplied.
D. Producers end up being better off, because they can now each sell more at this new government-mandated lower price.

Answer :

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GinnyAnswer GinnyAnswer · Answer 1 · 2024-08-02T15:18:26-04:00

Final answer:

A price ceiling leads to a shortage when the quantity demanded surpasses the quantity supplied due to the government setting the price lower than the equilibrium price.

Explanation:

When the government sets a binding price ceiling below the equilibrium price, a shortage occurs because the quantity demanded exceeds the quantity supplied. This results in an imbalance in the market where consumers may benefit from lower prices, but sellers suffer, and quality may deteriorate.

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