Question

Which of the following would be the least likely result of a binding price ceiling imposed on the market for rental cars? O a. an accumulation of dirt in the interior of rental cars O b. poor engine maintenance in rental cars O c. free gasoline given to people as an incentive to a rent a car O d. slow replacement of old rental cars with newer ones

Answer 1

The price ceiling is intended to protect the consumer from being the price too high, the price ceiling is the maximum legal price that a producer can charge for his product. A binding price ceiling is set below the equilibrium price and this would create a shortage in the rentals car market. Also the owner has got no incentive to replace the old cars with new cars because due to the price ceiling he is loosing the money.

The least likely outcome of a binding price ceiling would be

Ans: c). Free gasoline given to people as a incentive to rent a car.