Refer to Figure 6-2. The price ceiling shown in the figure will most likely result in which of the following outcomes?

• A. No effect on the market, as price ceilings do not influence supply or demand.
• B. Equilibrium in the market, as the price ceiling is set above the equilibrium price.
• C. A surplus of the good, as the quantity supplied exceeds the quantity demanded at the ceiling price.
• D. A shortage of the good, as the quantity demanded exceeds the quantity supplied at the ceiling price.

Answer: (D)

Verified step by step guidance

1. Step 1: Understand what a price ceiling is — it is a legally imposed maximum price that sellers can charge for a good or service, set below or above the market equilibrium price.
2. Step 2: Identify the equilibrium price and quantity in the market where the supply and demand curves intersect.
3. Step 3: Determine the position of the price ceiling relative to the equilibrium price. If the price ceiling is set below the equilibrium price, it becomes binding and affects the market.
4. Step 4: Analyze the effects of a binding price ceiling: at the ceiling price, the quantity demanded increases because the price is lower, while the quantity supplied decreases because producers are less willing to supply at the lower price.
5. Step 5: Conclude that this mismatch between higher quantity demanded and lower quantity supplied results in a shortage of the good in the market.