Question

Suppose the government sets a price ceiling that falls below the equilibrium price. Assuming price controls are effective, which of the following is true?

a) Surplus of goods
b) Shortage of goods
c) No impact on supply and demand
d) Equilibrium price increases

Answer 1

A price ceiling, when set below the equilibrium price, creates a shortage of goods.

Step-by-step explanation:

A price ceiling, when set below the equilibrium price, will cause a shortage of goods. This is because the quantity demanded will rise while the quantity supplied will fall. The low price encouraged by the price ceiling incentivizes buyers, resulting in excess demand.