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Question
Why does a shortage that occurs under a binding price ceiling increase over time?
a. Demand becomes more elastic.
b. Demand becomes more inelastic.
c. Demand and supply both become more elastic.
d. Demand and supply both become more inelastic.
e. Demand becomes more elastic, but supply becomes more inelastic.
Answer
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a. A surplus will continue to exist and will grow larger over time.
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Suppose Solomon lives in a community with no price controls. What do you expect will happen if his town borders a community where there is a binding price ceiling on most products?
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