SSC Exam > SSC Questions > Which of the following is true?a)Imposition ...
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Which of the following is true?
- a)Imposition of a price ceiling above the equilibrium price leads to excess demand.
- b)Imposition of price ceiling below the equilibrium price leads to an excess supply.
- c)Imposition of price ceiling below the equilibrium price leads to excess demand.
- d)Imposition of a price ceiling above the equilibrium price leads to an excess supply.
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Which of the following is true?a)Imposition of a price ceiling above ...
When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result. Price floors prevent a price from falling below a certain level.
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Hence, the correct option is (c)
Most Upvoted Answer
Which of the following is true?a)Imposition of a price ceiling above ...
Imposition of a price ceiling below the equilibrium price leads to excess demand.
Explanation:
Price ceiling is a government-imposed maximum price that can be charged for a particular good or service. It is usually set below the equilibrium price in order to make the product more affordable for consumers. However, when a price ceiling is set below the equilibrium price, it creates a situation of excess demand.
- Excess demand occurs when the quantity demanded by consumers exceeds the quantity supplied by producers at the given price. This leads to a shortage in the market.
Effects of a price ceiling below the equilibrium price:
1. Shortage: Since the price ceiling restricts the price from reaching the equilibrium level, it creates a situation where the quantity demanded exceeds the quantity supplied. As a result, there is a shortage of the product in the market.
2. Inefficient allocation: The shortage caused by the price ceiling leads to an inefficient allocation of resources. Consumers who are willing to pay the equilibrium price are unable to purchase the product, while some consumers who are not willing to pay the equilibrium price can still purchase the product at the lower price set by the price ceiling.
3. Black market: The shortage created by the price ceiling can lead to the emergence of a black market. Suppliers who are unable to legally sell the product at the market price may resort to selling it illegally at a higher price. This undermines the effectiveness of the price ceiling and can lead to other negative consequences such as quality issues and lack of consumer protection.
Conclusion:
In conclusion, when a price ceiling is imposed below the equilibrium price, it leads to excess demand and a shortage in the market. This can result in inefficient resource allocation and the emergence of a black market. Therefore, option C is the correct answer.
Explanation:
Price ceiling is a government-imposed maximum price that can be charged for a particular good or service. It is usually set below the equilibrium price in order to make the product more affordable for consumers. However, when a price ceiling is set below the equilibrium price, it creates a situation of excess demand.
- Excess demand occurs when the quantity demanded by consumers exceeds the quantity supplied by producers at the given price. This leads to a shortage in the market.
Effects of a price ceiling below the equilibrium price:
1. Shortage: Since the price ceiling restricts the price from reaching the equilibrium level, it creates a situation where the quantity demanded exceeds the quantity supplied. As a result, there is a shortage of the product in the market.
2. Inefficient allocation: The shortage caused by the price ceiling leads to an inefficient allocation of resources. Consumers who are willing to pay the equilibrium price are unable to purchase the product, while some consumers who are not willing to pay the equilibrium price can still purchase the product at the lower price set by the price ceiling.
3. Black market: The shortage created by the price ceiling can lead to the emergence of a black market. Suppliers who are unable to legally sell the product at the market price may resort to selling it illegally at a higher price. This undermines the effectiveness of the price ceiling and can lead to other negative consequences such as quality issues and lack of consumer protection.
Conclusion:
In conclusion, when a price ceiling is imposed below the equilibrium price, it leads to excess demand and a shortage in the market. This can result in inefficient resource allocation and the emergence of a black market. Therefore, option C is the correct answer.
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Which of the following is true?a)Imposition of a price ceiling above the equilibrium price leads to excess demand.b)Imposition of price ceiling below the equilibrium price leads to an excess supply.c)Imposition of price ceiling below the equilibrium price leads to excess demand.d)Imposition of a price ceiling above the equilibrium price leads to an excess supply.Correct answer is option 'C'. Can you explain this answer?
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