Assume a price ceiling is imposed at the current equilibrium price in the market for wheat. If the supply of wheat then decreases as a result of bad weather, what will result?

Question

Quizplus · Accepted Answer

A price ceiling creates a situation where the maximum price at which the product can be sold is below the equilibrium price. Since the equilibrium price is the price at which the quantity of wheat demanded equals the quantity of wheat supplied, a price ceiling will likely result in a shortage of wheat. If bad weather then decreases the supply of wheat, this shortage will become even more severe, and a larger quantity of wheat will be demanded than can be supplied at the price ceiling. Thus, a shortage of wheat will be created.

Assume a Price Ceiling Is Imposed at the Current Equilibrium