Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It will lead to a surplus of goods.
B
It will lead to a shortage of goods.
C
It will have no effect on supply or demand.
D
It will increase the market equilibrium price.
Understanding the Answer
Let's break down why this is correct
Answer
A price ceiling is a limit set by the government on how high a price can be charged for a good or service. When a price ceiling is set below the market equilibrium price, it means that the maximum price sellers can charge is lower than what they would normally charge in a free market. This often leads to an increase in demand because more people want to buy the product at the lower price. However, at the same time, suppliers may produce less of the product because they are not able to charge as much, leading to a decrease in supply. For example, if the market price of a popular toy is $20, but a price ceiling is set at $15, more parents will want to buy the toy, but fewer stores will want to sell it, creating a shortage where not everyone can get the toy they want.
Detailed Explanation
When a price ceiling is set below the market equilibrium, it means prices can't go high enough. Other options are incorrect because Some might think a price ceiling causes too many goods to be available; It's a common mistake to think a price ceiling has no effect.
Key Concepts
supply and demand
price controls
Topic
Analyzing Market Equilibrium Changes
Difficulty
medium level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.