Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The price ceiling was set below the equilibrium price, causing excess demand.
B
The price ceiling was set above the equilibrium price, leading to surplus.
C
The price ceiling had no effect on the market, as it was irrelevant.
D
The price ceiling increased supply, thus reducing shortages.
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 the price of a good can go. When the government sets this limit below the market price, it makes the good cheaper for consumers, but it can also lead to a shortage because producers may not want to sell at that lower price. For example, if rice is normally sold for $2 a pound but the government sets a price ceiling at $1. 50, farmers might decide to produce less rice because they won't make enough money. As a result, more people want to buy rice at the lower price, but there isn’t enough rice available, leading to a shortage.
Detailed Explanation
A price ceiling is a limit on how high a price can go. Other options are incorrect because Some might think that setting a high price would lead to too much of the item; It's a common mistake to think that price ceilings have no effect.
Key Concepts
Price Ceilings
Market Equilibrium
Supply and Demand
Topic
Price Ceilings and Market Outcomes
Difficulty
easy level question
Cognitive Level
understand
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