Final answer:
Option B, which states that a price ceiling prevents high-value buyers from outbidding low-value buyers, leading to misallocation of goods, is the correct answer. Price ceilings create shortages and quality deterioration as market equilibrium is disrupted.
Step-by-step explanation:
The correct answer to the question Which of the following is true about a price ceiling? is option B: It prevents high-value buyers from outbidding low-value buyers, and this leads to misallocation. Price ceilings are set to keep prices low and affordable, particularly for essential goods. However, when a price ceiling is below the market equilibrium, the result is that the quantity demanded exceeds the quantity supplied, leading to a shortage.
Price ceilings lead to a misallocation of resources because high-value buyers—those who are willing and able to pay a higher price—are unable to outbid low-value buyers who are only able to pay the ceiling price. This can result in a situation where those who value the product the most might not be able to acquire it, despite their willingness to pay more.
In addition, quality deterioration often occurs since producers have less incentive to maintain high quality when they cannot charge a price that reflects the cost of provision. This is particularly true in the case of a binding price ceiling, where the set price is substantially below the equilibrium price.