In microeconomics, what occurs in a market when the government imposes a binding legal price ceiling below the equilibrium price?
Answer and explanation
Correct answer: B. A market shortage of the good develops
- Step 1: A binding price ceiling set below equilibrium keeps prices artificially low, causing quantity demanded to exceed quantity supplied, resulting in a shortage. Answer: A market shortage of the good develops. Why not the others: A surplus occurs with a price floor above equilibrium, supply curves do not automatically shift, and producers face reduced profits or losses.
Practise more Microeconomics, Business Operations, Financial Management and the Macroeconomic Environment.
Free questions with an explanation for every one, and full timed Poklicna matura (Vocational Matura Slovenia) mock tests.
More Microeconomics, Business Operations, Financial Management and the Macroeconomic Environment questions
- In microeconomics, what fundamental economic concept describes the value of the next best alternative forgone when making a decision?
- In market analysis, what effect does an increase in the market price of a normal good generally have on consumer demand, ceteris paribus?
- In microeconomic theory, what is the term for a market structure characterized by a single seller supplying a unique product with no close s…
- In business production, which of the following is classified as a fixed cost in the short run?
- In price elasticity analysis, what does a price elasticity of demand coefficient with an absolute value greater than one (|Ed| > 1) indicate…
- In economic analysis, at what point is market equilibrium achieved in a competitive market for consumer goods?