Question

Setting a price ceiling below the equilibrium price can result in:

Answer 1

Answer:

The correct answer is option a.

Explanation:

A price ceiling is an upper limit on the price that could be charged for a product. It is generally imposed to protect consumers and to make necessary items affordable for the people.  

A price ceiling below the equilibrium price is called a binding price ceiling. It creates a shortage in the market as at lower prices the consumers will demand more of a commodity but the suppliers will supply less.  

Because of the law of demand and law of supply, the quantity demanded will be greater than the quantity supplied at a price that is fixed below the equilibrium price.