Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A surplus occurs
B
A shortage occurs
C
Market equilibrium is achieved
D
Prices rise above the ceiling
Understanding the Answer
Let's break down why this is correct
Answer
When a price ceiling is set below the equilibrium price, it means that the maximum price allowed for a good or service is lower than what is normally charged in the market. This situation can lead to a shortage because more people want to buy the product at the lower price, but sellers are not willing to supply as much since they can't cover their costs. For example, if the equilibrium price of bread is $3, but a price ceiling is set at $2, many customers will want to buy bread at that lower price, while bakers may produce less bread because it is not profitable for them. As a result, there will be fewer loaves of bread available than people want to buy, creating a situation where some customers cannot find bread at all. This imbalance between supply and demand can lead to long lines and frustration for consumers.
Detailed Explanation
When a price ceiling is below the equilibrium price, it means prices can't go high enough. Other options are incorrect because Some might think a surplus occurs, but that's not true here; It's a common mistake to think equilibrium is achieved.
Key Concepts
Market equilibrium
Topic
Price Ceilings and Market Outcomes
Difficulty
easy level question
Cognitive Level
understand
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