Answer:
When a government sets a maximum price below the equilibrium price, the most likely outcome is that c) a market shortage will develop.
To understand why this is the case, we need to first understand some basic principles of economics.
1. Equilibrium Price: The equilibrium price in any market is the price at which the quantity demanded by consumers equals the quantity supplied by producers. At this price, everyone who wants to buy the product can find someone willing to sell it, and everyone who wants to sell the product can find someone willing to buy it.
2. Price Ceiling: A maximum price set by a government is known as a price ceiling. This is a legally mandated maximum price that can be charged for a good or service. It's typically set below the equilibrium price in an attempt to make goods or services more affordable for consumers.
3. Impact on Supply and Demand: When a price ceiling is set below the equilibrium price, it disrupts the balance between supply and demand. Producers are less willing to supply their goods or services at this lower price, leading to a decrease in the quantity supplied. On the other hand, consumers find the lower prices more attractive, leading to an increase in quantity demanded.
4. Market Shortage: The result of this imbalance between supply and demand is a market shortage. There are more consumers wanting to buy the product than there are producers willing to sell it at the mandated maximum price.
As for options a), b), and d):
a) The market will not be unaffected because setting a maximum price below equilibrium disrupts the balance between supply and demand.
b) The quantity supplied will not be greater than the quantity demanded; in fact, it will be less due to producers being less willing to supply their goods or services at this lower price.
d) The market's rationing function will be impaired because with a shortage, not all consumers who want to buy the product at the lower price will be able to do so.
Therefore, based on these principles of economics, if a government sets a maximum price below the equilibrium price, it's highly probable that c) a market shortage will develop.