Chapter 8, Problem 2CYU

a)

To determine

If the statement is true or false.

Explanation of Solution

A price ceiling less than the equilibrium price generates a persistent shortage of products in the market because at a price ceiling, consumers are willing to buy more products as they are getting them at a lower price, while the producers are willing to supply less as they are getting a lower price for their product. So, the quantity demanded exceeds the quantity supply and results in a shortage of the product in a market.

The given statement, a price ceiling increases the quantity supplied is false because producers reduce their supply as they receive a lower price for their product.

Economics Concept Introduction

A price ceiling is a price control method used by the government to set the price of a product or service in the market. Purchasing or selling that product below that price would be a punishable act. The government usually sets the price ceiling below the equilibrium price to safeguard the interest of some consumers.

b)

To determine

If the statement is true or false.

Explanation of Solution

A price ceiling lowers the price of a product and causes the demand to rise, but the quantity supplied in the market falls which puts a barrier on the quantity sold in the market. So, the number of people who want the product is higher than the number of products available in the market; this makes some people worse off as they have to stay without consuming the product. So, this statement is true.

c)

To determine

If the statement is true or false.

Explanation of Solution

A price ceiling lowers the price received by producers. So, it makes all suppliers worse off. This statement is true.