Why Do Shortages Develop Under a Binding Price Ceiling

question 126

Multiple Choice

Why do shortages develop under a binding price ceiling?

• A) It encourages sellers to produce more of the product.
• B) It encourages buyers to purchase less of the product.
• C) It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
• D) It makes the price so low that the quantity demanded exceeds the quantity supplied on the black market.
• E) It encourages sellers to increase the quality of the products they sell,which in turn increases the quantity demanded.

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Definitions:

Market Supply

The total quantity of a good or service available for purchase at any given price level in a given market.

Price Floor

A government or regulatory-imposed minimum price set above the equilibrium price, preventing the market price from falling below it.

Total Welfare

The total economic well-being that a society achieves, including both consumer surplus and producer surplus.

Consumer Surplus

The contrast between what consumers intend to spend on a good or service and the actual amount they part with.