Suppose the Government Decides to Create a Ceiling on the Price

question 70

Multiple Choice

Suppose the government decides to create a ceiling on the price of gasoline, which of the following is not likely to be true under the described circumstances?

• A)The ceiling will have no effect if the ceiling is above the equilibrium market price.
• B)Producer surplus will likely increase if the ceiling is below the equilibrium market price.
• C)Producer surplus will be lower with a binding ceiling (below the initial market equilibrium price).
• D)The ceiling will lead to shortages if the ceiling is below the initial market price.

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Definitions:

Lessee

A person or entity that rents or leases property from another, known as the lessor, under the terms of a lease agreement.

Lessor

The party that leases or rents out a property or asset to another party, known as the lessee.

Contractual Agreement

A legally binding contract between two or more parties outlining terms and conditions of an agreement.

Par Value

The nominal value of a bond or stock as stated by the issuer, unrelated to its market value.