Refer to Exhibit 5-7. If the government were to remove a price ceiling of $2.00 per gallon in the milk market, the result would be:
A)a decrease in price and increase in the quantity of milk supplied.
B)a decrease in price and increase in the quantity of milk demanded.
C)an increase in both price and the quantity of milk supplied.
D)an increase in both price and the quantity of milk demanded.

Question

Refer to Exhibit 5-7. If the government were to remove a price ceiling of $2.00 per gallon in the milk market, the result would be:
A)​a decrease in price and increase in the quantity of milk supplied.
B)​a decrease in price and increase in the quantity of milk demanded.
C)​an increase in both price and the quantity of milk supplied.
D)​an increase in both price and the quantity of milk demanded.

Quizplus · Accepted Answer

With a price ceiling of $2.00 per gallon in the milk market, the quantity demanded will exceed the quantity supplied, creating a shortage. If the ceiling is removed, producers will be able to charge a higher price, which will then stimulate an increase in the quantity supplied. As such, both price and the quantity of milk supplied will increase.