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Chapter 4: Q. 4.17 (page 94)

Consider Figure 4-3.Suppose that the government

reduces the ceiling price to\(500 per unit.Would

the shortage at the\)500-per-unit ceiling price be

greater than at the$600-per-unit price ceiling?

Short Answer

Expert verified

Yes.

Step by step solution

01

Step1. Given information

The government reduced the price ceiling from $600 to $500.

02

Step2. Explanation

As the government further reduces the price ceiling, it implies that the maximum price charged is further reduced to $500 from $600. This shall increase the demand and reduce the supply even further.

Hence, at $500, the shortage would be greater than at $600.

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