Question

Suppose the government decides to impose a binding price ceiling on the market. 1. Please place the Price Ceiling line segment to ustrate this Price Ceiling 2. After the price ceiling is implemented, what exists A shortage Supply O A surplus O Both O Neither 3. Shade in the deadweight loss (DWL) that arises due to the price ceiling. Demand Quantity

Answer 1

Answer: After price ceiling is implemented a shortage supply exists if the price ceiling is below the market price

Explanation:

price ceiling is wen the government imposes the maximum price that should be charged  for a good or service. The effects of price ceiling depends on whether government sets the maximum price  that should be charged for a good or service below or above the market price,

if the government sets the price  above the market price, price ceiling will not affect the market, however if the the government sets the price below the market price price ceiling will cause changes in the quantity demanded and quantity supplied.

Please refer to the attachment, in the attachment we see a market that is in Equilibrium and operating efficiently  at price P' and Quantity demanded and supply is Q'. when government sets price ceiling below the market price  (below P') the quantity demanded will increase to Qdem while quantity supplied decreases to Qsup. This will cause  a shortage in the market because quantity demanded is higher than quantity supplied thus creating a Dead weight loss labelled by " DWL "