Question

Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a binding price ceiling on most products?

a. More consumers will purchase the product in the community with the price ceiling.
b. Prices in the legal market in the community with a binding price ceiling will rise.
c. There will be shortages in the community with a binding price ceiling.
d. The black market in your community will be larger than the black market in the community with the binding price ceiling.
e. Prices in the legal market in the community with a binding price ceiling will fall

Answer 1

Letter C. There will be shortages in the community with a binding price ceiling.

Step-by-step explanation:

Placing a price cap means preventing the market from regulating the supply and demand of goods to the extent desired by society. Thus, when placing a ceiling, producers will feel discouraged from offering their products as they may incur losses if costs are higher than prices. Or, they will not feel stimulated because they will have control over their profits. Thus, there will be shortages of products in the community with binding prices.