Question

Which of the following observations would be consistent with the imposition of a binding price ceiling on a market? After the price ceiling becomes effective, a. a smaller quantity of the good is bought and sold. b. a smaller quantity of the good is demanded. c. a larger quantity of the good is supplied.

Answer 1

Answer:

A. A smaller quantity of the goods bought and sold.

Explanation:

A binding price ceiling is a situation where the government sets the market price of a good or goods below equilibrium. This usually makes the price to bind the good or goods.

One of the things this situation leads to is the reduction on the quantity of goods that will be sold and bought.

Answer 2

Answer:

A) a smaller quantity of the good is bought and sold.

Explanation:

A price ceiling set below the equilibrium price will always cause an increase in the quantity demanded and a decrease in the quantity supplied, resulting in both a shortage and a deadweight loss.

Since the price is set below the equilibrium quantity the suppliers will reduce the quantity supplied, e.g. if a price ceiling is imposed on gasoline, the oil companies will have no incentive to increase their gasoline supply. Even though the clients will be willing to purchase more gasoline, gas stations will not supply enough quantity.