If a price ceiling is set above the current market clearing price, then
A) a surplus must immediately occur.
B) a shortage must immediately occur.
C) there will be incentives for black markets to develop.
D) quantity demanded will remain equal to quantity supplied at the current market clearing price.

Question

Quizplus · Accepted Answer

If a price ceiling is set above the current market clearing price, it means that the price is not legally allowed to be raised to its market equilibrium level. As a result, quantity demanded would exceed quantity supplied at the specified ceiling price, leading to a shortage. However, if the price ceiling is set above the current market clearing price, quantity demanded will remain equal to quantity supplied at the current market clearing price, and no surplus or shortage will occur. Black markets may still develop over time due to incentives for sellers to charge a higher price in an unregulated market.

If a Price Ceiling Is Set Above the Current Market