ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Price ceilings are enacted in an attempt to keep prices low for those who demand the product-be it housing, prescription drugs, or auto insurance. But when the market price is not allowed to rise to the equilibrium level, quantity demanded exceeds quantity supplied, and thus a shortage occurs.

Detailed explanation-2: -Answer and Explanation: The correct answer is price ceiling. A price ceiling set below the market equilibrium price causes a shortage. At a price below the market equilibrium price, quantity demanded will exceed quantity supplied.

Detailed explanation-3: -A price below equilibrium creates a shortage. Quantity supplied (550) is less than quantity demanded (700). Or, to put it in words, the amount that producers want to sell is less than the amount that consumers want to buy.

Detailed explanation-4: -Price ceilings that involve a maximum price below the market price create five important effects: Shortages, Reduction in Product Quality, Wasteful Lines and Other Search Costs, Loss of Gains from Trade & Misallocation of Resources. Q. Price Ceiling is a legal maximum on the price of a good or service.