Asked by Denise Rodriguez on Jun 17, 2024
Verified
Which statement is true?
A) An effective price ceiling is above equilibrium price and causes surpluses.
B) An effective price ceiling is above equilibrium price and causes shortages.
C) An effective price ceiling is below equilibrium price and causes surpluses.
D) An effective price ceiling is below equilibrium price and causes shortages.
Effective Price Ceiling
An effective price ceiling is a government-imposed limit on the price that can be charged for a product or service, set below the market equilibrium, leading to shortages.
Equilibrium Price
The price point at which the market's supplied and demanded goods quantities meet.
Surpluses
Occurs when the quantity of a good or service supplied exceeds the quantity demanded at a specific price; the opposite of shortages.
- Explore the consequences of government-established price constraints on the balance of market forces.
Verified Answer
DM
Devon MarreroJun 23, 2024
Final Answer :
D
Explanation :
An effective price ceiling is a maximum price set below the equilibrium price. This restricts producers from increasing the price, which leads to an excess demand or a shortage. Therefore, the statement that "An effective price ceiling is below equilibrium price and causes shortages" is true.
Learning Objectives
- Explore the consequences of government-established price constraints on the balance of market forces.