Question

When a government increases an effective price ceiling for a product:______

a. the surplus in the market will be reduced.
b. the shortage in the market will be increased.
c. the shortage in the market will be reduced.
d. the surplus in the market will increase

Answer 1

C) the shortage in the market will be reduced.

Step-by-step explanation:

When a binding price ceiling is imposed in a market, the quantity demanded for the product will increase while the quantity supplied will decrease. This will lead to a loss of economic efficiency causing a deadweight loss. It will also result in a product shortage since the quantity supplied will not be enough to satisfy the quantity demanded.

If the government increases the price, it will increase the quantity supplied and decrease the quantity demanded, reducing the shortage.