When an effective price ceiling causes a shortage, some of the buyers who value the good the most may not be able to get the good. Why does this occur?
A) The highest-value users cannot outbid the lower-valued users and so the seller cannot distinguish between them.
B) The highest-value users are eliminated from the market due to the price ceiling.
C) The price ceiling causes the price to rise so high that even the highest-value users cannot afford the good.
D) The government purchases most of the goods.

Question

Quizplus · Accepted Answer

A price ceiling prevents prices from rising to the equilibrium level, so buyers cannot use higher prices to signal their willingness to pay more. This makes it difficult for sellers to distinguish between high-value and low-value buyers, leading to a random allocation of goods.

When an Effective Price Ceiling Causes a Shortage, Some of the Buyers