If the market price of green tea is $20.00 per pound and the government will not allow green tea growers to charge more than $25.00 per pound of green tea, which of the following will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a price of $17.50.
B) There will be a shortage of green tea.
C) Supply must eventually increase so that the market will come into equilibrium at a price of $17.50.
D) The price ceiling will be ineffective and the market will remain in equilibrium.

Question

Quizplus · Accepted Answer

Since the government-imposed price ceiling of $25.00 is above the current market price of $20.00, it does not restrict the market operations. The market can still operate at the equilibrium price of $20.00 without hitting the ceiling, making the price ceiling ineffective.

If the Market Price of Green Tea Is $20