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NEW QUESTION: 1
Government price regulations in competitive markets that set maximum or ceiling prices below the
equilibrium price will in the short run:
A. Create shortages of that product.
B. Cause demand to increase.
C. Cause supply to increase.
D. Produce a surplus of the product.
Answer: A
Explanation:

Choice "c" is correct. Government price regulations in competitive markets that set maximum or ceiling
prices below the equilibrium price will create shortages of that product in the short run because quantity
supplied will be less than quantity demanded at that price.
Choice "a" is incorrect. Quantity demand will increase at the lower price.
Choice "b" is incorrect. Quantity supplied will decrease at the lower price.
Choice "d" is incorrect. A price set below the market's equilibrium price causes shortages, not surpluses,
per the graph above.

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