Question

Why would some buyer be willing to offer sellers 10 per unit instead of the6 price ceiling?

1) They think it is always fair for sellers to receive higher prices.
2) It is customary to pay more than the price ceiling.
3) $10 is closer to the equiLiBrium price and buyers prefer equiLiBrium prices to all others.
4) They want to increase their chances of buying a good that is in shortage.

Answer 1

Buyers offer more than the price ceiling to increase their chances of securing a product during a shortage, leading to fewer transactions and decreased social surplus.

Step-by-step explanation:

Buyers would be willing to offer sellers $10 per unit instead of the $6 price ceiling primarily because they want to increase their chances of buying a good that is in shortage. When price ceilings are imposed, the market price is kept below equilibrium, leading to excess demand (Qd) over supply (Qs), resulting in a shortage of the product. Offering more than the price ceiling is a means for buyers to secure the product amidst this shortage.

In such a scenario, transactions are limited by the quantity supplied, thereby reducing the number of transactions to Qs and causing a decrease in social surplus. Additionally, quality of goods may deteriorate due to the price ceiling as it lowers potential revenues for sellers.