Suppose a price ceiling is imposed below the undistorted market equilibrium price.Which of the following is true?
A)The increase in the real price paid by consumers is larger the more price inelastic consumer demand is.
B)The increase in the real price paid by consumers is larger the more price inelastic the supply curve is.
C)The size of the reduction in market output depends only on the price elasticity of supply and not the price elasticity of demand.
D)Both (a) and (b).
E)Both (a) and (c).
F)Both (b) and (c).
G)All of the above.
H)None of the above.

Question

Quizplus · Accepted Answer

When a price ceiling is imposed below the undistorted market equilibrium price, the real price paid by consumers will increase due to a shortage happening as suppliers are willing to sell only a small portion of the quantity demanded. The increase in the real price paid by consumers depends on the price elasticity of demand – the more price inelastic consumer demand is, the larger the increase in the real price paid by consumers. However, the reduction in market output is tied only to the price elasticity of supply and not the price elasticity of demand. Therefore, both (a) and (c) are true.

Suppose a Price Ceiling Is Imposed Below the Undistorted Market