What would you expect the consequences of size and quality to be for a product sold under a binding price ceiling?
A) Both the quality and the size of the product will decrease.
B) The quality of the product will increase but the size of the product will decrease.
C) Both the quality and the size of the product will increase.
D) The quality of the product will decrease but the size of the product will increase.
E) Neither the quality nor the size of the product will be affected.

Question

Quizplus · Accepted Answer

When a binding price ceiling is imposed, it creates a situation where demand exceeds supply. This results in a shortage of the product. In order to meet the demand, suppliers may need to reduce the size and/or quality of the product in order to continue offering the product at the controlled price. Therefore, we can expect both the quality and size of the product to decrease under a binding price ceiling.

What Would You Expect the Consequences of Size and Quality