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When a binding price ceiling is fixed by the government below the equilibrium price of a good, the expected market result is:
AA shortage, as quantity demanded exceeds quantity supplied
BA surplus, as quantity supplied exceeds quantity demanded
CAn immediate rise to a higher equilibrium price
DAn exact balance of quantity demanded and supplied
Answer & Solution
Correct answer: A. A shortage, as quantity demanded exceeds quantity supplied
1. A ceiling set below equilibrium holds the price artificially low.
2. At that low price buyers want more while sellers offer less.
3. Quantity demanded exceeds quantity supplied, creating a shortage; that rules out option B.
4. The price cannot legally rise to clear the market, so option A is correct.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit II "Determination of Prices", p.1_
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