Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It creates a surplus of goods in the market.
B
It eliminates all inefficiencies in the market.
C
It leads to a deadweight loss due to reduced quantity traded.
D
It has no effect on the equilibrium quantity.
Understanding the Answer
Let's break down why this is correct
Answer
A government-imposed price ceiling sets a maximum price that can be charged for a good or service, which is usually below the market equilibrium price. This can lead to a shortage because suppliers may not want to sell as much at the lower price, while consumers want to buy more. As a result, fewer transactions occur than would in a free market, creating deadweight loss, which is the loss of economic efficiency when the quantity of a good traded is reduced. For example, if the price ceiling on rent is set too low, landlords may choose not to rent out their properties, leading to fewer available apartments. Overall, this price control distorts the market, causing inefficiencies and preventing the market from reaching a balance between supply and demand.
Detailed Explanation
A price ceiling makes goods cheaper, but it can lead to fewer goods being sold. Other options are incorrect because Some might think a price ceiling creates extra goods, but it actually causes shortages; It's a common mistake to think a price ceiling fixes all market problems.
Key Concepts
deadweight loss
market distortions
Topic
Calculating Deadweight Loss
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.