Multiple Choice
Which of the following statements regarding the expected effects of a price control imposed on a competitive market is false?
5. Consumer and Producer Surplus; Price Ceilings and Floors
Price Ceilings, Price Floors, and Black Markets
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All of the following are problems associated with price ceilings except:
A
chronic excess demand
B
an eventual decline in the number of suppliers
C
the need to use ration coupons to purchase a good
D
chronic excess supply
E
landlords failing to maintain rent-controlled properties adequately
Verified step by step guidance1
Understand what a price ceiling is: A price ceiling is a government-imposed limit on how high a price can be charged for a product. It is usually set below the equilibrium price to make goods more affordable.
Identify the typical effects of a price ceiling: Price ceilings often lead to chronic excess demand because the price is kept artificially low, leading to more consumers wanting the product than there is supply available.
Consider the impact on suppliers: With a price ceiling, suppliers may earn less revenue, which can lead to a decline in the number of suppliers over time as it becomes less profitable to produce the good.
Examine the need for rationing: When there is excess demand due to a price ceiling, governments may need to use ration coupons to allocate the limited supply among consumers.
Recognize the exception: Chronic excess supply is not a problem associated with price ceilings. Instead, it is a characteristic of price floors, where the price is set above the equilibrium, leading to more supply than demand.
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