The Government Decides to Impose a Price Ceiling on a Good

question 187

Multiple Choice

The government decides to impose a price ceiling on a good because it thinks the market-determined price is too high.If it imposes the price ceiling above the equilibrium price:

• A)consumers will respond to the higher price and therefore wish to purchase less of the good than at the equilibrium price.
• B)producers will respond to the higher price and therefore offer fewer units for sale.
• C)consumers will purchase less of the good after the price ceiling is imposed.
• D)neither producers nor consumers will change their behavior.

---

Definitions:

Business Risk

The potential for loss or failure in a business operation due to factors like market conditions, financial instability, or operational challenges.

Financial Risk

The possibility of losing money on an investment or business venture, including market risk, credit risk, liquidity risk, and operational risk.

Variable Cost Ratio

This is a financial metric that represents the variable costs incurred as a percentage of sales, showing how much of each sales dollar is eaten by variable costs.

Degree of Total Leverage

The degree of total leverage measures the sensitivity of a company's net income to a change in sales, combining both operating and financial leverage effects.