Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to a surplus in the market
B
It prevents prices from exceeding the ceiling, potentially causing a shortage
C
There is no impact on market equilibrium
D
It increases the elasticity of supply
Understanding the Answer
Let's break down why this is correct
Answer
A price ceiling is a maximum price that the government allows for a good or service, and it can affect market equilibrium when supply is perfectly inelastic. In a perfectly inelastic supply scenario, the quantity supplied does not change regardless of the price. When a price ceiling is set below the market equilibrium price, it can lead to a shortage because the demand for the product increases while the supply remains the same. For example, if the government sets a price ceiling on essential medications, more people may want to buy them because they are cheaper, but the same number of medications is still available. This creates a situation where not everyone who wants the medication can get it, leading to unmet demand and potential health issues.
Detailed Explanation
A price ceiling stops prices from going too high. Other options are incorrect because Some might think a price ceiling causes extra goods to be available; It's a common mistake to think a price ceiling has no effect.
Key Concepts
price ceilings
government intervention
elasticity of supply
Topic
Analyzing Market Equilibrium
Difficulty
hard level question
Cognitive Level
understand
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