A Price Ceiling of $8 Placed on the Market in the Graph

question 114

Multiple Choice

A price ceiling of $8 placed on the market in the graph shown:

• A) is non-binding, and does not affect the market.
• B) is binding, and causes a shortage.
• C) is binding, and causes a surplus.
• D) is non-binding, and does not prevent the market from reaching equilibrium.

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Definitions:

Retained Earnings

The portion of net earnings not paid out as dividends but retained by the company for reinvestment.

Year-end Balance Sheet

A financial statement that lists a company's assets, liabilities, and equity at the end of its fiscal year.

Lower of Cost or Market

An accounting principle that states inventory should be recorded at the lower of its historical cost or its current market value.

Inventory Item

Goods or merchandise kept on the premises of a business or warehouse and available for sale or distribution.