If the equilibrium price of bread is $2 and the government imposes a $1.50 price ceiling on the price of bread, then:
A) more bread will be produced.
B) there will be a shortage of bread.
C) the demand for bread will decrease.
D) producers will charge $0.50 for bread.
E) $0.50 in tax revenue will be paid for each unit of bread.

Question

Quizplus · Accepted Answer

If the government imposes a price ceiling of $1.50 on bread, this is below the equilibrium price of $2. This means that producers will not be willing to produce as much bread at the lower price, and consumers will want to buy more bread at the lower price. Therefore, there will be excess demand for bread (also referred to as a shortage). This is because the quantity demanded will exceed the quantity supplied at the lower price. As a result, consumers may have to wait in long lines for bread, some may be unable to purchase bread, and black markets may form for bread.

If the Equilibrium Price of Bread Is $2 and the Government