A shortage results when a a. nonbinding price ceiling is removed from market. b. binding price...

A shortage results when a a. nonbinding price ceiling is removed from market. b. binding price ceiling is removed from a market. c. nonbining price celing is imposed on a market. d. binding price celing is imposed on a market.

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Expert Solution

Answer: Option D: Binding price ceiling is imposed on a market

Explanation: binding price ceiling refers to a situation where the government fixes the price below the equilibrium level of price. As a result the quantity demanded for the product at the binding ceiling price is more than the quantity supplied, which creates shortage for the product in the market. So option D is correct. Which is clearly evident from the below diagram, due to binding price ceiling the quantity demanded of the product in the market is OB and quantity supplied for the product is OA, so there a shortage to the extent of AB in the market.

Where a removal of non-binding price and binding price may results in setting the new price at equilibrium level, where the quantity demanded for a product equals with quantity supplied and creates no shortages for the product in a market. So option A and B cannot be correct.

Imposition of non binding price ceiling may results in fixing the price above equilibrium price. This never creates a shortage for the product in a market. Therefore option C cannot be correct.

Rahul Sunny answered 11 months ago

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