Producers will sometimes lower the quality of a good when the government imposes:
A)any price control.
B)an excise tax.
C)a binding price floor.
D)a binding price ceiling.

Question

Quizplus · Accepted Answer

When the government imposes a binding price ceiling, the price of a good cannot exceed a certain level. This creates a shortage of the good because demand exceeds supply, and producers may respond by reducing the quality of the good to save on production costs. This allows them to offer the product at the legal price while maintaining their profit margins.

Producers Will Sometimes Lower the Quality of a Good When