Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a shortage that is larger in the long run than in the short run. True or False?

Question

Koch

Business

7 September, 01:44

Assuming that the long-run demand for oranges is the same as the short-run demand, you would expect a binding price ceiling to result in a shortage that is larger in the long run than in the short run. True or False?

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Answers (1)

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Adison Webb · Answer 1

The answer is True

Explanation:

A binding price ceiling is a government price limit below the equilibrium price. The equilibrium price is where supply meets demand.

Binding price ceilings cause shortages because when the market tries to balance supply and demand by increasing the price of the good, it is not allowed to do so.

If the long-run demand for oranges is higher than the short-run demand does not avoid the creation of this shortages. In fact, shortages cause by binding price ceilings tend to become worse in the long-term, and what will probably happen in this scenario is the development of a black market for oranges.