Multiple Choice
A price ceiling will have no impact on a market if it is set
5. Consumer and Producer Surplus; Price Ceilings and Price Floors
Price Ceilings, Price Floors, and Black Markets
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When the government imposes a binding price ceiling, it causes
A
The supply curve to shift to the right
B
The demand curve to shift to the right
C
A shortage of the good
D
A surplus of the good
Verified step by step guidance1
Understand what a binding price ceiling is: A binding price ceiling is a maximum price set by the government below the equilibrium price, which prevents the market from reaching its natural equilibrium.
Identify the effects of a binding price ceiling: Since the price is set below the equilibrium, it typically results in a higher quantity demanded than supplied, leading to a shortage.
Analyze the supply and demand curves: A binding price ceiling does not cause the supply curve to shift to the right. Instead, it causes a movement along the supply curve due to the lower price.
Consider the demand curve: Similarly, a binding price ceiling does not cause the demand curve to shift to the right. Instead, it causes a movement along the demand curve due to the lower price.
Conclude the impact: The primary effect of a binding price ceiling is a shortage of the good, as the quantity demanded exceeds the quantity supplied at the imposed price ceiling.
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