Suppose a price ceiling is currently set below the equilibrium price. Now suppose that policy makers decide to lower the price ceiling. This reduction in the price ceiling will cause which of the following to occur?
A) The shortage in the market will decrease.
B) The shortage in the market will increase.
C) The surplus in the market will decrease.
D) The surplus in the market will increase.

Question

Quizplus · Accepted Answer

If the price ceiling is lowered further below the equilibrium price, it will create a larger gap between the maximum legal price and the market equilibrium price. This will cause a further increase in demand and a decrease in supply, resulting in a greater shortage in the market. Therefore, the correct choice is B, the shortage in the market will increase.

Suppose a Price Ceiling Is Currently Set Below the Equilibrium