When the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of potential buyers. True or false?

Question

Marcelo Bright

Business

2 April, 15:06

When the government imposes a binding price ceiling on a competitive market, a surplus of the good arises, and sellers must ration the scarce goods among the large number of potential buyers. True or false?

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Answers (1)

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Joaquin Cook · Answer 1

False

Explanation:

The competitive market works completely on the force of demand and supply. In this market there is no other restrictions or perks from any third party.

With this the prices of any commodity depends upon the free flow of market.

When the government imposes any restriction on price ceiling, in the competitive market then the shortage of goods arise, as because no individual supplier generally, gets ready to supply the goods at such binding price, which generally, leads to inflation, which is not practical as government has binding price ceiling.

Thus, the statement is false.