Assume that the market clearing price for portable power banks is $5, but that the maximum price that can be charged is $4. This is an example of
A) a price control that will lead to a surplus of portable power banks on the market.
B) a price floor that will lead to a shortage of portable power banks on the market.
C) markets failing to ration a fixed quantity of portable power banks.
D) a price ceiling that will likely lead to a shortage of portable power banks on the market.

Question

Quizplus · Accepted Answer

The maximum price that can be charged of $4 is a price ceiling, which is below the market clearing price of $5. This will likely lead to a shortage of portable power banks on the market as suppliers will not be able to charge the market clearing price and may reduce supply. This is a classic example of why price ceilings can lead to market inefficiencies.

Assume That the Market Clearing Price for Portable Power Banks