Question

What would price ceiling lead to when the maximum price is fixed lower than the equilibrium price?

• A. Excess demand.
• B. Excess supply.
• C. Deficient demand.
• D. None of the above

Answer 1

The correct option is A Excess demand.

Price ceiling means that a maximum price that can be charged for a product is fixed by the government. The sellers cannot charge a price beyond it. Price ceiling is done to help the people to get goods at a lower rate and save them from getting exploited. Hence, when the prices are reduced the demand for that commodity increases due to the mechanism of law of demand, while supply decreases, leading to excess demand.