Practice prompt · Q:economics-and-market-foundations/test-price-ceiling-001

Test a binding price ceiling and its incidence boundary

Compare a maximum price with equilibrium, compute excess demand and short side trade, and reject universal buyer benefit claims.

Updated Aug 7, 2026 Review due Nov 7, 2026

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Linden's baseline equilibrium is $60 and 800 chairs per week. What follows from a hypothetical $50 maximum price under the supplied schedules?

Choose the best answer. a The $50 ceiling binds below the $60 equilibrium, creates a 200-chair shortage, and limits modeled trade to 700 chairs; allocation, queues, effective cost, quality, and enforcement determine which buyers gain. b Every buyer gains $10 because all 900 desired chairs are purchased at the lower posted price. c The ceiling does not bind because any legal maximum is merely advisory in an economic model.

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Answer: a

Choice a. At $50, Qd is 900 and Qs is 700, so the ceiling binds with 200 excess demand and 700 short-side units before allocation and enforcement effects.