A price ceiling that sets the price of a good below market equilibrium will cause:
A) An increase in quantity demanded of the good.
B) A decrease in quantity supplied of the good.
C) A shortage of the good.
D) All of these.

Question

Quizplus · Accepted Answer

A price ceiling below market equilibrium will cause the price to be lower than the price that would have prevailed in the absence of the price ceiling. This would increase the quantity demanded of the good (A) since consumers will now be willing and able to buy more of the good at the lower price. However, at the same time, this lower price will decrease the quantity supplied of the good (B) since producers will no longer be able to earn as much profit at the lower price. As the quantity demanded increases and the quantity supplied decreases, a shortage of the good (C) will develop. Therefore, all three choices are correct.

A Price Ceiling That Sets the Price of a Good