Which of the following would not be a result of a binding price ceiling on child care?

Question

BlackTom AI · Accepted Answer

To tackle this question, start by recalling what a binding price ceiling does in a competitive market: it sets the maximum legal price below the market equilibrium, which creates a shortage where quantity demanded exceeds quantity supplied.
Option 1: an increase in the quantity of child care supplied. This is not a typical outcome of a binding price ceiling. In fact, because the price is held below equilibrium, suppliers have less incentive to produce more, and the quantity supplied usually falls or remains constrained. So this option is not a result of the binding ceiling.
Option 2: a quantity of child care demanded greater than quantity supplied. This is a classic consequence of a binding price ceiling: higher quantity demanded at the lower price, but insufficient supply, leading to a shortage. This option correctly describes a result.
Option 3: a decrease in quality of care. When shortages occur and resources are strained, providers may cut corners or reduce quality to ration the scarce supply. This is a plausible indirect effect of a binding price ceiling.
Option 4: a lower price of childcare. A binding price ceiling directly suppresses the price; consumers pay less than the market-clearing price. Therefore, a lower price is indeed a typical result of the policy.
In summary, only Option 1 describes something that would not result from a binding price ceiling, while Options 2, 3, and 4 align with the expected effects of binding the price below equilibrium.

ECON1-TTh Chapter 6 Assignment

Which of the following would not be a result of a binding price ceiling on child care?

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