Suppose the equilibrium price of bananas is $5 and a price ceiling of $7 is implemented. This will result in:

Question

BlackTom AI · Accepted Answer

To analyze the effect of a price ceiling, we need to compare the ceiling to the equilibrium price.
Option a) 'a shortage, as the price ceiling is above the equilibrium' would be true if the ceiling were below the equilibrium price, binding the market and causing quantity supplied to fall short of quantity demanded. However, here the ceiling is $7 while the equilibrium price is $5, so the ceiling is not binding and does not create a shortage.
Option b) 'no change in the quantity of bananas sold' correctly reflects the situation. Since the ceiling ($7) is above the equilibrium price ($5), the market would naturally settle at the equilibrium price, and the quantity sold remains unchanged. The ceiling does not constrain price or quantity because it is not the binding constraint.
Option c) 'the supply of bananas to exceed the demand for bananas' would imply a surplus, which occurs when the price is above market-clearing. But a ceiling above equilibrium does not create a surplus; prices stay at the equilibrium, where supply equals demand.
Option d) 'a surplus, as the price ceiling is below the equilibrium' asserts a binding ceiling that drives the price below equilibrium, creating excess supply. This is inconsistent with the given: the ceiling is above equilibrium, not below, so no surplus arises.
Overall, only the binding condition matters: a price ceiling below the equilibrium would reduce price and create a shortage; a ceiling above the equilibrium leaves the market to clear at the equilibrium price, producing no change in quantity sold.

Suppose the equilibrium price of bananas is $5 and a price ceiling of $7 is implemented. This will result in:

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