Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It creates a deadweight loss due to reduced incentive for producers to supply the goods.
B
It leads to allocative efficiency as more consumers can now afford the goods.
C
It results in an increase in consumer surplus without any impact on producer surplus.
D
It eliminates market shortages and ensures optimal distribution of resources.
Understanding the Answer
Let's break down why this is correct
Answer
When a government sets a price ceiling on essential goods, it means they limit how high the price can go to keep these goods affordable for everyone. This can help many people buy what they need, like food or medicine, but it can also lead to problems. For example, if the price of bread is capped too low, bakeries might not make enough bread because they can’t cover their costs. This could result in shortages, where there isn’t enough bread for everyone who wants it. So, while the intention is to help people afford essential goods, it can create a situation where those goods are less available, leading to sub-optimal outcomes.
Detailed Explanation
When the government sets a price ceiling, it can make producers less willing to supply goods. Other options are incorrect because Some might think that making goods cheaper helps everyone; It's a common belief that lower prices only help consumers.
Key Concepts
Optimal and Sub-optimal Outcomes
Deadweight Loss
Allocative Efficiency
Topic
Optimal and Sub-optimal Outcomes
Difficulty
hard level question
Cognitive Level
understand
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