Which of the following is a likely consequence of a government-imposed price ceiling set below the equilibrium price?

• A. A surplus of the good in the market
• B. The market price rises above the equilibrium price
• C. Producers increase production to meet higher demand
• D. A shortage of the good in the market

Answer: (D)

Verified step by step guidance

1. Understand what a price ceiling is: it is a government-imposed maximum price that can be charged for a good or service, set below the equilibrium price to make the good more affordable.
2. Recall that the equilibrium price is where the quantity demanded equals the quantity supplied, so setting a price ceiling below this point disrupts the natural balance.
3. Analyze the effect of the price ceiling on quantity demanded and quantity supplied: at a lower price, consumers want to buy more (increase in quantity demanded), but producers are less willing to supply the good (decrease in quantity supplied).
4. Recognize that this mismatch between higher demand and lower supply creates a shortage, meaning the quantity demanded exceeds the quantity supplied at the imposed price ceiling.
5. Conclude that the likely consequence of a price ceiling below equilibrium is a shortage of the good in the market, not a surplus or an increase in market price.