The question requires us to determine the reason for the inefficiency of effective
Explanation of Solution
A
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.
Price ceiling generates various types of inefficiencies in the market like inefficient allocation of sales, a persistent shortage of products, less-quality products, black-marketing, wastage of resources, and a temptation for corruption and bribery in the economy. Despite the various inefficiencies, the price ceiling benefits some consumers.
So, option “e” or “all of the above” is correct.
Chapter 8 Solutions
Krugman's Economics For The Ap® Course
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