A Level Economics AQA Practice Exam

Which market outcome typically results from a price ceiling?

1. Surplus of goods in the market

2. Equilibrium pricing

3. Shortage of goods in the market

4. Increased production efficiency

The correct answer is: Shortage of goods in the market

A price ceiling is a legal maximum price that can be charged for a good or service. When a price ceiling is set below the market equilibrium price, it often leads to a shortage of goods in the market. This occurs because the lower price increases the quantity demanded by consumers but decreases the quantity supplied by producers. Producers may find it unprofitable to sell at the lower price, leading them to reduce production or exit the market altogether. As demand exceeds supply due to the imposed price ceiling, consumers will experience difficulty in obtaining the good or service, resulting in a shortage. This situation exemplifies how government intervention in markets can lead to imbalances between supply and demand. The other options do not accurately represent the outcome of a price ceiling; for instance, a surplus typically occurs when there is a price floor, and equilibrium pricing is disrupted by the ceiling. Increased production efficiency is not a typical consequence of price ceilings, as these interventions often lead to inefficiencies in the market.