Figure 4-19 Refer to Figure 4-19. When the Price Ceiling Applies in Ceiling

question 41

Multiple Choice

Figure 4-19
Refer to Figure 4-19. When the price ceiling applies in this market and the supply curve for gasoline shifts from S₁ to S₂,

• A) the price will increase to P₃.
• B) a surplus will occur at the new market price of P₂.
• C) the market price will stay at P₁ due to the price ceiling.
• D) a shortage will occur at the price ceiling of P₂.

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Definitions:

Monopolistically Competitive

Describes a market structure where many firms offer products that are similar but not perfect substitutes, leading to competitive pricing but with some degree of market power.

Excess Capacity

The amount of production capability that is not being used by a firm or within an economy.

Excess Capacity

Refers to the situation where a firm is producing at a lower scale of output than it has been designed for.

Monopolistically Competitive

A market structure characterized by many firms selling products that are similar but not identical, allowing for competitive pricing and differentiation.