Question

Consider the US market for chocolate, a market in which the government has imposed a price ceiling. Which of the following events could convert the price ceiling from a nonbinding to a binding price ceiling? a. a sharp drop in consumer income; chocolate is a normal good. b. a government study that shows that consuming chocolate increases the incidence of cancer. c. a large increase in the size of the cocoa bean crop; cocoa beans are used to produce chocolate. d. South American cocoa bean producers refuse to ship to chocolate producers in the US.

Answer 1

Answer:

D) South American cocoa bean producers refuse to ship to chocolate producers in the US.

Explanation:

A nonbinding rice ceiling means that the equilibrium price is below the price ceiling, so it will have no effect in real life. In order for the price ceiling to become binding and start to negatively affect the market, the equilibrium price must increase.  

The only option that would increase the equilibrium price is option D, since the shortage of a key input will probably result in an increase in the price of the key input. If the price of a key input increases, the cost of producing chocolate will increase, resulting in a leftward shift of the supply curve.

A leftward shift of the supply curve will decrease the total quantity supplied and it will increase the price of chocolate at every level of quantity demanded. This will result in an increase in the equilibrium price which might ultimately change the price ceiling from nonbinding to binding.