When a price ceiling below the equilibrium price is imposed on a good, production of the good
A) is frozen at the pre-ceiling level.
B) does not change.
C) increases.
D) decreases.
E) either increases or decreases depending on whether the supply of the good increases or decreases when the price ceiling is imposed.

Question

Quizplus · Accepted Answer

When a price ceiling is imposed below the equilibrium price, the quantity demanded of the good increases while the quantity supplied decreases. This leads to a shortage of the good. As producers are unable to raise the price to the equilibrium level, they may reduce their production in response to the lower price, leading to a decrease in production of the good.

When a Price Ceiling Below the Equilibrium Price Is Imposed