The imposition of a price ceiling on a market often results in which of the following outcomes?

• A. A reduction in demand for the good
• B. A shortage of the good as quantity demanded exceeds quantity supplied
• C. An increase in the equilibrium price above the ceiling
• D. A surplus of the good as quantity supplied exceeds quantity demanded

Answer: (B)

Verified step by step guidance

1. Understand what a price ceiling is: it is a legally imposed maximum price that sellers can charge for a good or service, set below the market equilibrium price.
2. Recall that at the equilibrium price, quantity demanded equals quantity supplied. When a price ceiling is set below this equilibrium, the price is artificially kept low.
3. Analyze the effect on quantity demanded: since the price is lower than the equilibrium, consumers want to buy more, so quantity demanded increases.
4. Analyze the effect on quantity supplied: producers receive less revenue due to the lower price, so they supply less, causing quantity supplied to decrease.
5. Combine these effects to conclude that quantity demanded exceeds quantity supplied, resulting in a shortage of the good in the market.