Suppose you live in a community with no price controls. What do you expect will happen if your town borders a community where there is a binding price ceiling on most products? a. More consumers will purchase the product in the community with the price ceiling. b. Prices in the legal market in the community with a binding price ceiling will rise. c. There will be shortages in the community with a binding price ceiling. d. The black market in your community will be larger than the black market in the community with the binding price ceiling. e. Prices in the legal market in the community with a binding price ceiling will fall
Business · High School · Tue Nov 03 2020
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Given that your town has no price controls and borders a community with a binding price ceiling, several outcomes might occur:
c. There will be shortages in the community with a binding price ceiling.
When there's a binding price ceiling in a neighboring community, it often leads to a situation where the price is artificially capped below the equilibrium market price. This scenario usually results in increased demand but reduced supply, leading to shortages as suppliers are not incentivized to produce or sell the product at the capped price, causing a mismatch between supply and demand. As a consequence, shortages are expected to occur in the community with the price ceiling.