A government may impose a price ceiling if which of the following is true?

• A. The equilibrium price is considered too high for consumers to afford essential goods.
• B. The government wants to encourage production by raising prices.
• C. There is a surplus of the good in the market.
• D. Producers are unable to cover their costs at the current market price.

Answer: (A)

Verified step by step guidance

1. Understand the concept of a price ceiling: it is a legal maximum price set by the government below the equilibrium price to make goods more affordable for consumers.
2. Identify the condition under which a government would impose a price ceiling: typically, when the equilibrium price is considered too high for consumers to afford essential goods.
3. Recognize that a price ceiling is not used to encourage production by raising prices; instead, it restricts prices from rising above a certain level.
4. Note that a surplus occurs when the price is above equilibrium, but a price ceiling usually leads to a shortage, not a surplus.
5. Understand that if producers cannot cover their costs, this situation relates to price floors or other interventions, not price ceilings.