Question

Suppose the government wants to encourage Americans to exercise more, so it imposes a binding price ceiling on the market for in-home treadmills. As a result,

a) the demand for treadmills will increase.
b) the supply of treadmills will decrease.
c) a shortage of treadmills will develop.
d) All of the above are correct.

Answer 1

Imposing a binding price ceiling on in-home treadmills below the equilibrium price increases demand, decreases supply, and creates a market shortage.

Step-by-step explanation:

When the government imposes a binding price ceiling on in-home treadmills, it sets the maximum price that can be legally charged for a treadmill below the market equilibrium price. As a result, the quantity demanded of treadmills will increase because consumers will want to take advantage of the lower prices. However, producers might be less willing to supply treadmills at this lower price, leading to a decrease in the quantity supplied. This mismatch between higher demand and lower supply will result in a shortage of in-home treadmills in the market.

Therefore, the correct answer to the student's question is c) a shortage of treadmills will develop.