Price Ceilings Create Shortages in Markets

Steps:

• Identify that a maximum price is a price ceiling set below the equilibrium price.
• At equilibrium, quantity supplied equals quantity demanded.
• Below equilibrium, quantity demanded exceeds quantity supplied.
• This imbalance results in excess demand, leading to shortages.

Why D is correct:

• By definition, an effective price ceiling below equilibrium prevents prices from rising to balance supply and demand, causing quantity demanded to exceed quantity supplied and creating a shortage.

Why the others are wrong:

• A: Price controls suppress inflation by capping prices, not raising it.
• B: A maximum price enforces a lower limit, preventing prices from rising.
• C: Shortages may increase imports to meet demand, not decrease them.

Final answer: D