ECONOMICS
MARKETS AND PRICES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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would be below the equilibrium
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would be at the equilibrium
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would be above the equilibrium
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None of the above
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Detailed explanation-1: -When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.
Detailed explanation-2: -A price ceiling is a limit on the price of a good or service imposed by the government to protect consumers by ensuring that prices do not become prohibitively expensive. For the measure to be effective, the price set by the price ceiling must be below the natural equilibrium price.
Detailed explanation-3: -Case 2: The price ceiling is above the equilibrium price. In this case, there will be an overproduction of the quantity supplied, and a lower willingness to pay from consumers. This decreases the economic surplus and creates deadweight loss.
Detailed explanation-4: -When price is below equilibrium level, there will be a shortage of commodity in the market.
Detailed explanation-5: -The correct answer is option e. A price that is below the equilibrium price and quantity in the market will lead to a shortage of supply.