ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The correct answer is A price ceiling below the equilibrium price often leads to a Shortage of commodity and black marketing. 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: -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-3: -A binding price ceiling will create a surplus of supply and will lead to a decrease in economic surplus.

Detailed explanation-4: -While they make staples affordable for consumers in the short term, price ceilings often carry long-term disadvantages, such as shortages, extra charges, or lower quality products. Economists worry that price ceilings cause a deadweight loss to an economy, making it more inefficient.

Detailed explanation-5: -Calculating the shortage. The shortage can be calculated as follows. Set the price ceiling price equal to the demand equation and equal to the supply equation and solve for Qd and Qs respectively. Subtracting Qs from Qd, we have a shortage of 4.75 units.