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Figure 3.9
-(Figure 3.9) Suppose the government enacts a price ceiling of $250 per ton. Which of the following statements are TRUE?
A) I, II, and IV
B) I and IV
C) II and III
D) II, III, and IV

Question

Use the following to answer question:
Figure 3.9 
-(Figure 3.9) Suppose the government enacts a price ceiling of $250 per ton. Which of the following statements are TRUE? 
A) I, II, and IV 
B) I and IV 
C) II and III 
D) II, III, and IV

Quizplus · Accepted Answer

If the government enacts a price ceiling of $250 per ton, the market price will be forced down to that level. This means that demand will exceed supply at the artificially low price, leading to a shortage. Statement I is true because a price ceiling below the equilibrium price creates a shortage in the market. Statement IV is true because a shortage leads to increased search costs for consumers and sellers. Statement II is false because the price ceiling will not lead to a surplus, but rather a shortage. Statement III is also false because the price ceiling will not increase the quantity supplied, but rather decrease it due to the lower price that sellers receive. Therefore, the correct answer is B.

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