Prolonged defense of a price ceiling tends to increase the supply of a commodity held by a buffer stock manager, thus putting downward pressure on price.

Question

Quizplus · Accepted Answer

A price ceiling, when set below the equilibrium price, typically results in a shortage rather than a surplus because the price is too low to encourage suppliers to increase their supply. This would not lead to an increase in the supply held by a buffer stock manager, nor would it put downward pressure on price; instead, it could exacerbate the shortage.

Prolonged Defense of a Price Ceiling Tends to Increase the Supply