Price Controls and Market Equilibrium

Steps:

• Identify maximum price as a ceiling below equilibrium, reducing quantity supplied and increasing demand.
• Recognize minimum price as a floor above equilibrium, increasing quantity supplied and reducing demand.
• Evaluate each option against supply-demand effects: ceilings cause shortages, floors cause surpluses.
• Select the option matching standard economic outcomes for effective controls.

Why A is correct:

• An effective maximum price (ceiling) below equilibrium price restricts supply below demand, creating a shortage per the law of supply and demand.

Why the others are wrong:

• B: An effective ceiling prevents the market price from rising above the cap, leading to shortage instead.
• C: An effective minimum price (floor) creates a surplus, not a shortage requiring rationing.
• D: An effective floor keeps the market price from falling below the minimum, resulting in excess supply.

Final answer: A