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

Question

Quizplus · Accepted Answer

When a price ceiling is imposed below the free-market equilibrium price, it creates excess demand since the quantity demanded exceeds the quantity supplied at the ceiling price. In this case, the price ceiling of $130 per hour is lower than the equilibrium price of $250 per hour, so there will be more people wanting to use the ice time than there is ice time available at that price. This can create problems for the arena owners, who may need to find ways to allocate ice time fairly or may experience negative effects on their profits. It is unlikely that the free-market equilibrium price will adjust down to $100, as there is no reason to believe that the demand for ice time has decreased significantly. A black market could develop if demand exceeds supply and buyers are willing to pay more than the price ceiling, but this is not mentioned as an option in the question. Therefore, the best choice is C, an excess demand for ice time.

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