When government imposes a price ceiling or a price floor on a market,

Question

Quizplus · Accepted Answer

When a price ceiling or floor is imposed, the market price is no longer able to act as a rationing device, as it no longer reflects the true supply and demand. This often leads to either shortages (in the case of a price ceiling) or surpluses (in the case of a price floor). While the intent of the policy may be to benefit one group (e.g. consumers or producers), it can have unintended consequences for the other group and for the overall efficiency of the market. Therefore, neither B, C, nor D are valid choices.

When Government Imposes a Price Ceiling or a Price Floor