With an increase in the demand for a good,if prices are not allowed to increase,________.
A) social surplus will be maintained at maximum
B) firms will have no incentive to increase the quantity supplied of the good
C) a surplus will occur in the market
D) overall efficiency will increase in the market

Question

Quizplus · Accepted Answer

If prices are not allowed to increase with an increase in demand, firms will have no incentive to increase the quantity supplied of the good. This is because producing more of the good will not bring any extra profits due to the price ceiling. Therefore, this will result in a shortage of the good in the market. While social surplus may be maintained at maximum, overall efficiency in the market will decrease due to the shortage of the good. A surplus will not occur in the market under these circumstances.

With an Increase in the Demand for a Good,if Prices