If a binding price celling were placed on eggs, which of the following would happen?
A Everyone who had been buying eggs can now buy the same quanity as before but for less. The incentive for suppliers to supply eggs rises.
B Everyone who had been buying eggs can now buy the same quantity as before for less. The incentive for suppliers to supply eggs falls.
C Some people who want to buy eggs at the going price won’t be able to. The incentive for suppliers to supply eggs rises.
D Some people who want to buy eggs at the going price will not be able to. The incentive for suppliers to supply eggs falls.
The correct answer and explanation is:
The correct answer is D: Some people who want to buy eggs at the going price will not be able to. The incentive for suppliers to supply eggs falls.
Explanation:
A binding price ceiling is a government-imposed limit on how high a price can be charged for a good or service. If the price ceiling is set below the equilibrium price (the price at which supply equals demand), it is considered binding, meaning it has an effect on the market.
- Impact on Consumers:
When a binding price ceiling is imposed on eggs, it causes the price of eggs to fall below the market equilibrium. As a result, consumers who were previously purchasing eggs at the equilibrium price can now buy them at the lower price. However, the lower price leads to higher demand for eggs because more people want to purchase eggs at this reduced cost. - Impact on Suppliers:
At the same time, the lower price reduces the incentive for suppliers to produce and sell eggs. This is because suppliers might not find it profitable to sell eggs at a price lower than the equilibrium price. As a result, the quantity of eggs that suppliers are willing to supply decreases. - Market Shortage:
Because of the combination of higher demand and lower supply, there is a shortage of eggs. Some people who want to buy eggs at the lower price may not be able to find them, as suppliers are not producing enough to meet the increased demand.
In summary, a binding price ceiling creates a situation where the demand exceeds the supply, resulting in a shortage and reduced incentives for suppliers to produce eggs. Therefore, not everyone who wants to buy eggs at the lower price will be able to do so.