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:

Tax Rate

The specified rate at which a person’s or company’s income is taxed.

Variable Cost

Costs that are directly correlated with the amount of product produced.

Variable Cost Per Unit

Costs that change directly and proportionally with the level of production or sales volume.

Earnings Before Interest And Taxes

A measure of a firm's profitability that excludes interest and income tax expenses.