A price ceiling below the equilibrium price leads to _______.

A. Black marketing

B. Shortage of commodity

C. Surplus of the commodity

D. Hoarding of commodity

E. Increased in consumption

Choose the most appropriate from the options given below:

The correct answer is A, B and D only.

Key Points

• Price ceilings below the equilibrium price lead to shortages and black markets.
• This is because consumers want to buy more of the good or service at the price ceiling price than suppliers are willing to sell.
• Black markets arise when there is a shortage of a good or service, and people are willing to pay higher prices than the legal price ceiling in order to obtain it.

Important PointsPrice ceilings below the equilibrium price can have a number of negative consequences, including - 

• Shortages -
  • Shortages can lead to higher prices for consumers, as well as decreased access to essential goods and services.
  • Shortages occur because consumers want to buy more of the good or service at the price ceiling price than suppliers are willing to sell.
  • This is because the price ceiling is below the equilibrium price, which is the price at which the quantity demanded and the quantity supplied are equal.
• Black markets -
  • Black markets can lead to crime, corruption, and a loss of tax revenue for the government.
  • Black markets arise when there is a shortage of a good or service, and people are willing to pay higher prices than the legal price ceiling in order to obtain it.
  • Black markets are illegal, but they can be very profitable for sellers.
• Hoarding -
  • Hoarding can reduce the quantity of goods or services that are available to other consumers, and it can also lead to higher prices.
  • Hoarding is the accumulation of goods or services in the anticipation of a shortage or price increase.
  • Hoarding can also contribute to shortages, as it reduces the quantity of goods or services that are available to other consumers.
• Decreased quality - Suppliers may have to cut corners in order to meet the price ceiling, which can lead to a decrease in the quality of goods and services.