Which of the following best explains how the short-run consequences of price ceilings on bread are magnified in the long run?

• A. The price ceiling will lead to a surplus of bread as producers increase output.
• B. Consumers will eventually stop demanding bread due to lower prices.
• C. Government intervention will always eliminate shortages over time.
• D. Producers may exit the market, reducing supply further and causing persistent shortages.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what a price ceiling is — it is a legal maximum price set below the market equilibrium price, intended to make a good more affordable.
2. Step 2: Analyze the short-run effect of a price ceiling on bread — since the price is kept artificially low, the quantity demanded increases while the quantity supplied decreases, leading to a shortage.
3. Step 3: Consider the long-run adjustments — producers may find it unprofitable to produce bread at the lower price and may exit the market, which reduces the overall supply further.
4. Step 4: Recognize that this reduction in supply exacerbates the shortage, making it persistent rather than temporary.
5. Step 5: Conclude that the long-run consequence of the price ceiling is a magnified shortage due to decreased supply from producer exit, rather than surplus or reduced demand.