If an effective price ceiling is placed on hamburgers, then
Multiple Choice
A. The price charged will be below the market-clearing price.
B. A black market for hamburgers may evolve.
C. The quantity demanded will exceed the quantity supplied.
D. All of these choices are correct
The Correct Answer and Explanation is:
Correct Answer: D. All of these choices are correct
Explanation (300 words):
A price ceiling is a government-imposed maximum price that can be legally charged for a good or service. When an effective price ceiling is implemented, it is set below the market-clearing (equilibrium) price, which is the price at which quantity demanded equals quantity supplied.
Let’s break down each option to understand why D. All of these choices are correct is the right answer:
A. The price charged will be below the market-clearing price
✅ True.
For a price ceiling to be effective (binding), it must be set below the equilibrium price. If it were set above the equilibrium price, it would have no impact. Setting the ceiling below the equilibrium means suppliers cannot charge the price that would naturally balance demand and supply, leading to market distortion.
B. A black market for hamburgers may evolve
✅ True.
When the legal price is kept artificially low, shortages occur—there are more people wanting hamburgers at the low price than there are hamburgers available. As a result, some consumers may be willing to pay more, and some sellers may illegally sell at higher prices. This creates a black market where transactions occur outside legal boundaries.
C. The quantity demanded will exceed the quantity supplied
✅ True.
At the lower price set by the ceiling, more consumers will want to buy hamburgers (increased quantity demanded), while fewer producers will be willing to supply them (reduced quantity supplied). This imbalance creates a shortage in the market.
Conclusion:
Since all three individual statements (A, B, and C) are correct consequences of an effective price ceiling, the best choice is D. All of these choices are correct.