Which of the following is a potential problem associated with implementing a price ceiling in a market?

• A. It increases producer surplus by allowing firms to charge higher prices.
• B. It eliminates the possibility of black markets forming.
• C. It guarantees that all consumers will receive the good at a lower price.
• D. It can lead to shortages as the quantity demanded exceeds the quantity supplied.

Answer: (D)

Verified step by step guidance

1. Understand what a price ceiling is: a legally imposed maximum price that sellers can charge for a good or service, set below the market equilibrium price.
2. Recall the effect of a price ceiling set below equilibrium: it makes the good cheaper than the market would naturally set, increasing quantity demanded but decreasing quantity supplied.
3. Analyze the consequences: since quantity demanded exceeds quantity supplied, a shortage occurs because suppliers are unwilling or unable to provide enough of the good at the lower price.
4. Consider other effects: shortages can lead to non-price rationing mechanisms such as long lines or black markets, where the good is sold illegally at higher prices.
5. Evaluate the incorrect options: a price ceiling does not increase producer surplus (it usually decreases it), does not eliminate black markets (it can encourage them), and does not guarantee all consumers get the good (due to shortages).