Answer to Question #223165 in Microeconomics for darily

Question

Assume the government imposes a price ceiling on the cigarette market. Construct a cigarette demand and supply market. Explain (5) how non-binding and/ binding price ceilings cause a decrease in market efficiency.

Answer 1

The non-binding or binding price ceiling prevents markets from adjusting to the normal equilibrium quantity and price, which creates inefficient results.