Suppose the equilibrium price of a given good is $10, and the government imposes a price ceiling at $12. Which of the following is the most likely result?
Group of answer choices
Another rationing device will be used to distribute the good among buyers.
This will cause a shortage, so some buyers and sellers will risk breaking the law in order to exchange the good at a prohibited price.
The price ceiling will cause a surplus so not all units produced will be sold.
The price ceiling is not binding and will have no effect on the market.
Answer (1)
If you're at a school fair, and the price of a toy is $10 that’s what buyers and sellers agree on.Now, the school makes a rule: "No one can sell this toy for more than $12.Will this rule change anything? No!Why? Because the toy was already being sold for $10, which is lower than $12. People will still buy and sell at the same price. The rule doesn’t affect anyone.That’s why we say: "The price ceiling is not binding and will have no effect on the market."
