055 050 E 045 040 0 Number of pencils Figure 43 Refer to Fig

0.55 0.50 E 0.45 0.40 0 Number of pencils Figure 4.3 Refer to Figure 4.3. if the government will not allow retailers to charge more than $0 40 for a penci., which of the following will happen? O The market will be in equilibrium at a price of s0 40 O Demand must eventually decrease so that the market wll come into equuibrium at a price of so 40 0 A nonprice rationing system such as queuing must be used to ration the available supply ofpencis O Supply must eventually increase so that the market will come into equilibrium at a price of so 40 VE

Solution

If the government sets a price ceiling at $0.4, there will be excess demand and then a non-price rationing system like queuing must be used to ration the available supply of pencils. Hence the correct answer is (C).