Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The price ceiling prevents the price from reaching the equilibrium level, leading to excess demand.
B
Producers are incentivized to supply more due to guaranteed higher prices.
C
Consumers have less income to purchase the good, reducing demand.
D
The government increases taxes on producers, discouraging production.
Understanding the Answer
Let's break down why this is correct
Answer
When a government sets a price ceiling, it means that they are limiting how high the price of a good can go. This is often done to make essential items, like food or rent, more affordable for people. However, when the price is kept below what suppliers need to make a profit, they may not want to produce as much of that good. For example, if the government sets a low price on bread, bakers might make less bread because they can't cover their costs, leading to fewer loaves available for consumers. As a result, the demand for bread stays high, but the supply decreases, creating a shortage in the market.
Detailed Explanation
A price ceiling stops prices from going up to the level where supply meets demand. Other options are incorrect because This answer suggests that higher prices would encourage more production; This option implies that less income leads to lower demand.
Key Concepts
Government Intervention
Market Equilibrium
Price Controls
Topic
Exam Strategies for Economics
Difficulty
hard level question
Cognitive Level
understand
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