The rationing of tires shown in the photograph is most likely to be caused by which of the following?

• A. A shortage resulting from government-imposed price ceilings
• B. A positive externality that increases the social benefit of tire consumption
• C. A surplus caused by overproduction in a competitive market
• D. A negative externality that increases the social cost of tire production

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of rationing in economics. Rationing typically occurs when there is a shortage of a good, meaning the quantity demanded exceeds the quantity supplied at the current price.
2. Step 2: Recognize that government-imposed price ceilings set a maximum price below the market equilibrium price, which can lead to shortages because suppliers are unwilling to supply enough at the lower price, while consumers demand more.
3. Step 3: Analyze the other options: a positive externality increases social benefits but does not directly cause rationing; a surplus means excess supply, which would not cause rationing; a negative externality increases social costs but does not directly cause shortages or rationing.
4. Step 4: Conclude that the most likely cause of rationing in the photograph is a shortage resulting from a government-imposed price ceiling, as this directly leads to excess demand and the need to ration the limited supply.
5. Step 5: Summarize that when a price ceiling is set below equilibrium, the market cannot clear, causing shortages and rationing mechanisms such as waiting lines or limited quantities per customer.