If the equilibrium price of avocados is $4 and the government issues a price ceiling of...
If the equilibrium price of avocados is $4 and the government issues a price ceiling of $4.50, what is likely to happen in the market for avocados?
Group of answer choices
A) The equilibrium price will remain unchanged from the price ceiling.
B) The equilibrium price will rise to $4.50 as a result of the price ceiling.
C) A shortage of avocados will result from the price ceiling.
D) A surplus of avocados will result from the price ceiling.
Homework Answers
The price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.
If price ceiling is set below the equilibrium price, then it will be binding and if it is set above the equilibrium price, then it will be not binding.
Since the equilibrium price of avocados is $4 and the government issues a price ceiling of $4.50, so price ceiling will not be effective, so there will be no change in the equilibrium price and quantity.
Hence option A is the correct answer.
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