Suppose the free-market equilibrium price for ice time at privately operated hockey arenas is $250 per hour.If the municipal government imposes a price ceiling of $130 per hour,we can expect to see
A)an adjustment of the free-market equilibrium price to $100.
B)an excess supply of ice time.
C)a black market price below the free-market equilibrium price.
D)that neither excess supply nor excess demand is created.
E)an excess demand for ice time.

Question

Quizplus · Accepted Answer

When the government imposes a price ceiling below the free-market equilibrium price, it creates excess demand for the product since the price is lower than what suppliers are willing to supply at. In this case, there will be an excess demand for ice time at $130 per hour, which means that ice time will be rationed either through waiting lists or first-come, first-served systems. The price ceiling will prevent the market from reaching its efficient equilibrium and may lead to a decrease in the quality of ice time or a decrease in the supply of ice time in the long run.

Suppose the Free-Market Equilibrium Price for Ice Time at Privately