Price Ceiling and Market Shortages

Steps:

• Equilibrium price balances supply and demand; maximum price (ceiling) below it creates shortage.
• At ceiling price, quantity demanded exceeds quantity supplied.
• Producers cut output due to lower revenue, reducing production.
• Consumption is limited by reduced supply, not rising as intended.

Why D is correct:

• Law of supply: Price below equilibrium reduces producer incentives, lowering quantity supplied (production).

Why the others are wrong:

• A: Ceiling above equilibrium has no effect; market stays at equilibrium, consumption unchanged.
• B: Ceiling below equilibrium causes shortage; consumption limited by supply, not rising.
• C: Ceiling above equilibrium doesn't affect production; it remains at equilibrium level.

Final answer: D