What is a likely outcome of imposing a price ceiling below the market-clearing price?

• A. Prices rise above equilibrium, eliminating shortages.
• B. Prices adjust to clear the market.
• C. Shortages occur when demand exceeds supply.
• D. Market remains perfectly efficient.

Answer: (C)

A price ceiling below the price that would clear the market creates a shortage. When the price is kept artificially low, more people want the good than suppliers are willing to offer, so the quantity demanded exceeds the quantity supplied. The market can’t reach a balance where supply equals demand, leading to shortages. In this situation, prices cannot rise to eliminate the excess demand, and the other outcomes—prices rising to clear the market or the market remaining perfectly efficient—don’t occur under a binding price ceiling.