Question

a price ceiling often results in a shortage

True or False? A price ceiling often results in a shortage, which occurs when the market price is below the equilibrium price. Select one: True False If price changes, what happens to the demand curve? Select one: a. It shifts right b. It shifts left c. There is no shift, only a movement along the demand curve, d. It shifts down Using the following graph, what does Point x signify doo D EC 202 Chapter 2.docx EC 202 Chapter 1.docx

Answer 1

1. True

Price ceiling means maximum price of a commodity that the sellers can charge from the buyers. Often, the government fixes this price lower than the equilibrium price of a commodity. This causes increase in demand because at a lower price more quantity of a commodity is demanded. As a result quantity demanded exceeds quantity supplied which causes shortage in the market.

2. There is no shift, only a movement along the demand curve

When quantity demanded of a commodity changes due to change in its own price then movement along the demand curve happens. Shift in demand curve takes place because of change in factors othen than price. So when price changes there is no shift, there is only a movement along the demand curve.