When a price ceiling is in effect:
A) there is no competition for goods.
B) suppliers have an incentive to provide really good customer service.
C) demanders compete for goods in short supply by accepting reductions in quality.
D) suppliers compete for customers by inefficiently raising quality levels.

Question

Quizplus · Accepted Answer

When a price ceiling is in effect, the maximum price that can be charged for a good is set below the equilibrium price. This creates a shortage of the good as demand exceeds supply at the lower price. In such a scenario, demanders compete for goods in short supply by accepting reductions in quality. This is because sellers may respond to the shortage by reducing the quality or quantity of the good they offer, or by adding extra charges for related services. As a result, consumers may have to settle for goods that are of lower quality than what they would have chosen in the absence of the price ceiling.

When a Price Ceiling Is in Effect