A shortage results when:
A) a price floor is imposed.
B) a price ceiling is imposed.
C) there is excess supply without any price controls.
D) a price floor is imposed but it is not binding.

Question

Quizplus · Accepted Answer

A price ceiling, which sets a legally mandated maximum price below the equilibrium price, creates a shortage because the quantity demanded exceeds the quantity supplied at that price. This leads to rationing, queuing or other means of non-price allocation. A price floor, on the other hand, sets a legally mandated minimum price above the equilibrium price, and creates a surplus as suppliers produce more than buyers want at that price. If the price floor is not binding, meaning it is below the equilibrium price, it has no effect on the market outcome. Excess supply without any price controls also leads to a surplus, not a shortage.

A Shortage Results When