When the Price of a Good Is Legally Set Below

question 69

Multiple Choice

When the price of a good is legally set below the equilibrium level, a shortage often results. This shortage

• A) is a temporary failure of the market mechanism.
• B) is the result of a shift in demand.
• C) is the result of a shift in supply.
• D) occurs because the price ceiling prevents the market mechanism from establishing an equilibrium price.

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Definitions:

Interest Rates

The cost of borrowing money or the reward for saving, usually expressed as a percentage of the principal amount annually.

Balloon Note

A type of loan that has a large or "balloon" payment due upon maturity, typically after a series of lower regular payments.

Maturity

The final payment date of a loan or financial instrument at which point the principal (and all remaining interest) is due to be paid.

Covenants

Agreements or promises in a formal loan or bond agreement that cover certain conditions, actions, or restrictions taken by the borrower.