question archive Why do shortages develop under a binding price ceiling? a
Why do shortages develop under a binding price ceiling? a
Subject:MarketingPrice:2.88 Bought18
Why do shortages develop under a binding price ceiling?
a. It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
b. It makes the price so low that the quantity demanded exceeds the quantity supplied on the black market.
c. It encourages sellers to increase the quality of the products they sell, which in turn increases the quantity demanded.
d. It encourages buyers to purchase less of the product.
e. It encourages sellers to produce more of the product.
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The correct option is a. It makes the price so low that the quantity demanded exceeds the quantity supplied in the legal market.
Explanation:
Price ceiling explains the government intervention in the market by setting a level of maximum price a producer can charge in the economy. This price generally sets below the market price due to which a producer is discourage to supply more in the economy. And, a consumer encouraged purchasing more products at lower price. As a result, shortage exists in the economy.
