Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Surplus of goods occurs
B
Shortage of goods occurs
C
Market equilibrium is maintained
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 market equilibrium price, it means that the maximum price allowed for a good or service is lower than what buyers and sellers would normally agree on. This can lead to a shortage because more people want to buy the product at the lower price, but producers may not want to sell as much since they make less money. For example, if the market price of a popular toy is $20, but a price ceiling is set at $15, many parents will want to buy the toy, but the toy makers might produce fewer toys because they earn less profit. As a result, there won't be enough toys for everyone who wants one, leading to long lines or empty shelves. Overall, while the price ceiling aims to make goods more affordable, it can create problems by reducing the supply.
Detailed Explanation
When a price ceiling is below the market equilibrium, 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 the market stays the same.
Key Concepts
market equilibrium
Topic
Price Controls and Market Outcomes
Difficulty
easy level question
Cognitive Level
understand
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