A binding price ceiling hurts all producers who would have sold the good in a perfectly competitive market

Question

BlackTom AI · Accepted Answer

Consider the statement about a binding price ceiling in a perfectly competitive market. 
First, recognize what a binding price ceiling does: it sets a maximum price below the market-clearing level, which typically creates a shortage because quantity demanded exceeds quantity supplied at that cap. 
Option evaluation: 
- The claim that a binding price ceiling harms all producers who would have sold the good in a perfectly competitive market suggests universal harm to every producer who would have been active at the equilibrium price. In reality, the effects are uneven. Some producers will indeed see lower prices and reduced sales, which hurts their revenue and profits. However, others may be less affected or might continue selling some quantity, especially those with lower costs or greater efficiency, and thus are not strictly harmed in every case. The blanket assertion that all would be hurt ignores the variation across producers in costs, output, and ability to adapt to the new price. 
- Another way to think about it is that the market price ceiling lowers the price received by sellers and typically reduces the quantity sold, which reduces producers’ total revenue. Yet, saying it hurts all producers overstates the impact because the distribution of losses is not perfectly uniform; some producers may experience small losses, break-even outcomes, or even indirectly benefit if they previously faced unsold inventory or if the shortage creates persistent demand that certain efficient producers can meet at the lower price. 
- A broader misconception here is assuming price controls act identically on both consumers and producers. While consumers generally gain from lower prices and possible shortages, producers face pressure from lower prices and reduced output. Still, the phrase “all producers” ignores heterogeneity in costs and the possibility of some producers sustaining activity or adapting without being financially devastated. 
In summary, the logic of a binding price ceiling harming producers is sound, but claiming that it harms every producer who would have sold the good is too absolute. The correct takeaway is that it typically harms many producers, especially the less efficient or higher-cost ones, while some producers may be less affected or could still operate under the new constraint.

SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 2, Individual Portion

A binding price ceiling hurts all producers who would have sold the good in a perfectly competitive market

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Similar Questions

In this market, there will be excess demand of 39 . Ironically, the amount of natural gas used with the price ceiling will be less than the natural gas used if the price was allowed to rise to the market level.

True of Fase? If the demand increased enough, the price ceiling could become non-binding.

True or False? if supply increased enough, the price ceiling could become non-binding.

假设香蕉的均衡价格为 5 美元，并实施 7 美元的价格上限。这将导致：

Figure 6-2 Refer to Figure 6-2. The price ceiling causes quantity

A price ceiling is

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SIPAIA6400_001-002_2025_3 - Microeconomic Analysis for International and Public Affairs Problem Set 2, Individual Portion

A binding price ceiling hurts all producers who would have sold the good in a perfectly competitive market

View Explanation

Log in for full answers

Similar Questions

In this market, there will be excess demand of 39 . Ironically, the amount of natural gas used with the price ceiling will be less than the natural gas used if the price was allowed to rise to the market level.

True of Fase? If the demand increased enough, the price ceiling could become non-binding.

True or False? if supply increased enough, the price ceiling could become non-binding.

假设香蕉的均衡价格为 5 美元，并实施 7 美元的价格上限。这将导致：

Figure 6-2 ​ Refer to Figure 6-2. The price ceiling causes quantity

A price ceiling is

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Figure 6-2 Refer to Figure 6-2. The price ceiling causes quantity