Suppose that the government sets a price ceiling in the market for potatoes at $0.75 per pound of potatoes.If the equilibrium price of potatoes is $1.10,the result of the price ceiling will be a _____________ of potatoes and ____________ exchanges will be made with the price ceiling than would be made in a free market.
A) shortage; fewer
B) surplus; fewer
C) shortage; more
D) surplus; more

Question

Quizplus · Accepted Answer

By setting a price ceiling below the equilibrium price, the government is creating an artificially low price for potatoes. This will incentivize consumers to buy more potatoes than they would at the higher equilibrium price. At the same time, it will discourage suppliers from producing as many potatoes because they will not be able to make as much profit at the lower price. The result is a shortage of potatoes. Additionally, because the quantity demanded at the lower price will exceed the quantity supplied, fewer exchanges will be made with the price ceiling than would be made in a free market.

Suppose That the Government Sets a Price Ceiling in the Market