Suppose Solomon lives in a community with no price controls.What do you expect will happen if his town borders a community where there is a binding price ceiling on most products?
A) Prices in the legal market in the community with a binding price ceiling will rise.
B) Prices in the legal market in the community with a binding price ceiling will fall.
C) There will be shortages in the community with a binding price ceiling.
D) More consumers will purchase products in the community with the price ceiling.
E) The black market in his community will be larger than the black market in the community with the binding price ceiling.

Question

Quizplus · Accepted Answer

A binding price ceiling typically leads to shortages because the price is set below the equilibrium, causing demand to exceed supply.

Suppose Solomon Lives in a Community with No Price Controls