The market for apples is in equilibrium at a price of $0.50 per kilogram.If the government imposes a price ceiling in the market at $0.40 per kilogram:
A) quantity demanded will decrease.
B) quantity supplied will increase.
C) there will be a shortage of the good.
D) the price ceiling will not affect the market price or output.

Question

Quizplus · Accepted Answer

The price ceiling of $0.40 per kilogram is below the equilibrium price of $0.50 per kilogram, which means the government is not allowing the market to adjust to the true equilibrium price. At the price ceiling, the quantity demanded will increase, while the quantity supplied will decrease since suppliers will not be able to cover their costs. This will create a shortage where the quantity demanded exceeds the quantity supplied. Therefore, there will be a shortage of the good.

The Market for Apples Is in Equilibrium at a Price