Why will a binding price ceiling result in an inefficient allocation of resources? Choose 1 answer: (A) At the quantity exchanged, $M C=M B$ and there is a shortage. (B) At the quantity exchanged, $M BM C$ and there is a surplus. (C) At the quantity exchanged, $M BM C$ and there is a shortage in the market.

Question

Why will a binding price ceiling result in an inefficient allocation of resources? Choose 1 answer: (A) At the quantity exchanged, $M C=M B$ and there is a shortage. (B) At the quantity exchanged, $M B>M C$ and there is a surplus. (C) At the quantity exchanged, $M BM C$ and there is a shortage in the market.

Accepted Answer

∻Solution∻ ‖ a ⋮ Understanding a Binding Price Ceiling: A binding price ceiling is set below the equilibrium price, leading to a situation where the quantity demanded exceeds the quantity supplied, creating a shortage. ‖ ‖ b ⋮ Inefficient Allocation of Resources: This occurs because at the quantity exchanged, the price does not reflect the true scarcity of the good. Consumers who value the good more may not get it, while those who value it less do. ‖ ‖ c ⋮ Analyzing the Options: The correct answer must reflect a situation where there is a shortage (quantity demanded > quantity supplied) and where the marginal benefit exceeds the marginal cost at the quantity exchanged. ‖ ‖ d ⋮ Identifying the Correct Answer: Option (E) states that at the quantity exchanged $MB > MC$ and there is a shortage in the market. This aligns with the definition of a binding price ceiling, where the price is too low to clear the market, resulting in a shortage and an inefficient allocation because the marginal benefit of the last unit sold is greater than its marginal cost. ‖ ∻Answer∻ ⚹ (E) At the quantity exchanged $MB > MC$ and there is a shortage in the market. ⚹ ∻Key Concept∻ ⚹ Inefficient allocation of resources under a binding price ceiling ⚹ ∻Explanation∻ ⚹ A binding price ceiling results in a shortage and an inefficient allocation of resources because the marginal benefit of the last unit sold is greater than its marginal cost, indicating that there are consumers willing to pay more for the good than it costs to produce it. ⚹◊How does a binding price ceiling affect the allocation of resources in a market according to the relationship between marginal cost (MC) and marginal benefit (MB)?⍭ Generate me a similar question◊

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