If a price ceiling is set below the equilibrium price, what is a common market outcome?

If a price ceiling is set below the equilibrium price, what is a common market outcome?

• A. A surplus occurs as quantity supplied exceeds quantity demanded.
• B. Prices rise above the ceiling.
• C. A shortage occurs because demand exceeds supply given the ceiling.
• D. Market equilibrium is restored.

Answer: (C)

Setting a price ceiling below the price that would balance supply and demand creates a binding restriction that prevents the market from clearing. At this lower price, more consumers want to buy the good than producers want to supply, so the quantity demanded exceeds the quantity supplied. That gap is a shortage, which persists because the ceiling stops prices from rising to the equilibrium level where supply and demand would match. The market is not restored to equilibrium while the ceiling is in place. In contrast, a surplus would occur if the price were forced above the equilibrium, which a ceiling set below the equilibrium prevents.

Setting a price ceiling below the price that would balance supply and demand creates a binding restriction that prevents the market from clearing. At this lower price, more consumers want to buy the good than producers want to supply, so the quantity demanded exceeds the quantity supplied. That gap is a shortage, which persists because the ceiling stops prices from rising to the equilibrium level where supply and demand would match. The market is not restored to equilibrium while the ceiling is in place. In contrast, a surplus would occur if the price were forced above the equilibrium, which a ceiling set below the equilibrium prevents.