Price Controls and Market Equilibrium

Steps:

• Identify effective maximum price as a ceiling below equilibrium, where quantity demanded exceeds quantity supplied.
• Recognize effective minimum price as a floor above equilibrium, where quantity supplied exceeds quantity demanded.
• Apply to option A: ceiling causes shortage as demand outstrips supply.
• Eliminate others by checking against surplus or price movement rules.

Why A is correct:

• An effective price ceiling below equilibrium price leads to a shortage, per the law of supply and demand, as quantity demanded rises while quantity supplied falls.

Why the others are wrong:

• B: Effective ceiling binds the price below equilibrium, preventing it from rising.
• C: Effective minimum price creates a surplus, not a shortage needing rationing.
• D: Effective minimum price binds above equilibrium, stopping the price from falling.

Final answer: A