Which of the following correctly explains the effect of a price ceiling in a market?
A)The sales of the product will increase.
B)The demand for the product will exceed supply resulting in a shortage.
C)The number of new firms in the market will increase.
D)The output produced in the market will increase.

Question

Quizplus · Accepted Answer

A price ceiling is a government-imposed limit on how high a price can be charged for a particular good or service. If the price ceiling is set below the market equilibrium price, it will result in a shortage because the quantity of demand for that good will exceed the quantity supplied. This is because the price of the good is artificially low, making it more attractive to buyers, but less attractive to sellers. As a result, some sellers might exit the market, and the quantity supplied will fall, leading to a shortage.

Which of the Following Correctly Explains the Effect of a Price