Answer to Question #201757 in Economics of Enterprise for Ali Kilponen

Question

Suppose a binding price ceiling is imposed on a market that was in equilibrium when the ceiling was imposed. Everything else held constant, the ceiling will _____ the quantity of the good demanded and _____ the quantity of the good supplied.

Select one:

A.

increase; decrease

B.

not change; not change

C.

decrease; decrease

D.

decrease; increase

E.

increase; increase

Answer 1

As the binding price ceiling is set below the equilibrium price, then the ceiling will increase the quantity of the good demanded and decrease the quantity of the good supplied.

So, the correct answer is A.