Asked by mikey sanchez on May 07, 2024
Verified
If the market price of green tea is $20.00 per pound and the government will not allow green tea growers to charge more than $25.00 per pound of green tea, which of the following will happen?
A) Demand must eventually decrease so that the market will come into equilibrium at a price of $17.50.
B) There will be a shortage of green tea.
C) Supply must eventually increase so that the market will come into equilibrium at a price of $17.50.
D) The price ceiling will be ineffective and the market will remain in equilibrium.
Price Ceiling
A cap established by the government on the maximum price that can be set for a good, service, or resource.
Market Equilibrium
A state where market supply equals market demand, leading to stable prices and quantities.
- Understand how quantity demanded and quantity supplied are affected by changes in price controls.
Verified Answer
ZK
Zybrea KnightMay 07, 2024
Final Answer :
D
Explanation :
Since the government-imposed price ceiling of $25.00 is above the current market price of $20.00, it does not restrict the market operations. The market can still operate at the equilibrium price of $20.00 without hitting the ceiling, making the price ceiling ineffective.
Learning Objectives
- Understand how quantity demanded and quantity supplied are affected by changes in price controls.