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Chapter 4: Q. 4.4 (page 75)

Explain the effects of price ceilings

Short Answer

Expert verified

Imposing a maximum price below the equilibrium leads to shortages.

Step by step solution

01

Step1. Introduction

Price ceiling is a method of price control where the government introduces a maximum price at which the exchange of that particular good can occur. This price is below the market equilibrium price.

02

Step2. Explanation

When such price which is below the market equilibrium is imposed, it implies that suppliers will supply less than the equilibrium quantity and consumers will demand more than the equilibrium quantity. This leads to shortage or also known as the situation of excess demand in the market.

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Most popular questions from this chapter

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

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Consider Figure 4-1.The current demand and

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