When an Effective Price Ceiling Causes a Shortage, Some of the Buyers

question 258

Multiple Choice

When an effective price ceiling causes a shortage, some of the buyers who value the good the most may not be able to get the good. Why does this occur?

• A) The highest-value users cannot outbid the lower-valued users and so the seller cannot distinguish between them.
• B) The highest-value users are eliminated from the market due to the price ceiling.
• C) The price ceiling causes the price to rise so high that even the highest-value users cannot afford the good.
• D) The government purchases most of the goods.

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Definitions:

Net Present Value

A method used to evaluate the profitability of an investment by calculating the difference between the present value of cash inflows and cash outflows.

Capital Budgeting

The process of evaluating and selecting long-term investments that are in alignment with the goal of shareholders' wealth maximization.

Renovation Expense

Costs associated with updating or improving a property or facility.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in an equal amount per period.