Question

Starting from a​ free-market equilibrium, a binding price ceiling leads to excess

________and​ a(n) ________ in the quantity exchanged.
A. Supply; decrease
B. Demand; increase
C. Goods; surplus
D. Price; shortage

Answer 1

A binding price ceiling creates excess demand and a decrease in the quantity exchanged in the market, resulting in a shortage.

Step-by-step explanation:

Starting from a free-market equilibrium, a binding price ceiling leads to excess demand and a(n) decrease in the quantity exchanged. This occurs because a price ceiling set below the equilibrium price causes the quantity demanded to rise, as the lower price encourages more consumers to purchase the product, and the quantity supplied to fall, as producers are less willing to sell the product at a lower price. This mismatch between the higher quantity demanded and the lower quantity supplied results in a shortage of the product in the market.