The table given below reports the quantity demanded and supplied of a commodity at different prices in a market.Table 3.5

-Refer to Table 3.5. If government imposes a price ceiling of $2:
A)the price will be above equilibrium.
B)the price will fall to $1 because producers will be forced to incur losses.
C)demand will increase.
D)a surplus will result equal to 20 units.
E)a shortage will result equal to 20 units.

Question

The table given below reports the quantity demanded and supplied of a commodity at different prices in a market.Table 3.5
 
-Refer to Table 3.5. If government imposes a price ceiling of $2:
A)the price will be above equilibrium. 
B)the price will fall to $1 because producers will be forced to incur losses. 
C)demand will increase. 
D)a surplus will result equal to 20 units. 
E)a shortage will result equal to 20 units.

Quizplus · Accepted Answer

At $2, the quantity demanded is 50, but the quantity supplied is only 30. This creates a shortage of 20 units. Producers will not be forced to incur losses because they will be able to sell all their output at the higher price. The price ceiling is below the equilibrium price, so it will not be above equilibrium. Demand will not increase, as it is determined by other factors.

The Table Given Below Reports the Quantity Demanded and Supplied