Question

Complete the following paragraph by pulling down the correct word or phrase. When the government imposes a binding price ceiling on loaves of bread, producers will want to supply (a) bread. Therefore, a binding price ceiling bread and consumers will demand (b) of bread. will lead to a (c) The price ceiling will have other effects as well. The size of a loaf of bread and the quality of bread would (d) Although the consumers lucky enough to buy bread would pay a lower price, their opportunity cost of buying bread would (e) The price ceiling would also cause other changes over time. In the long run, the demand for and supply of bread becomes (f) elastic, leading to a (g)

Answer 1

When the government imposes a binding price ceiling, it would mean that the price now is less than the price through equilibrium. This would mean that the producers will want to supply (a) less and the consumers would want to demand (b) more. Therefore a binding price ceiling would lead to (c) shortage of bread.

There would be other effects of price ceiling as well. One of them would be the size and the quality of loaf of bread would (d) reduce. This is because given the suppliers are providing at a price lower than equilibrium and hence in order to cover the costs would try to reduce the quality and size of bread loaves.

Even though due to a lower price, the consumers are enjoying the benefit of paying less , the opportunity cost is (e) higher. This is because there is shortage of loaves in the market, so for buying bread , consumers would be paying a huge opportunity cost which would include cost of frequent visits to grocery for search of breads, or searching different stores for it. It could also be in form of long lines which could mean that giving up something resourceful to do in that time.

In long run the demand and supply would become (f) more elastic. This is because the consumers would be able to find substitutes of the good and the producers would be able to expand business to offer goods other than bread loaves.

This higher elasticity would further increase the (g) shortage . The shortage would be more in the long run than the short run.

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