Consider a perfectly competitive market with a binding price

Consider a perfectly competitive market with a binding price ceiling. Which of the following is true? O The quantity traded in this market is less than the efficient level. O The quantity traded in this market is greater than the efficient level. O The quantity traded in this market equals the efficient leve O The quantity traded in this market equals the equilibrium quantity under perfect competition. O none of the above.

Solution

Q1. Option A is True.

In a perfectly competitive market with a binding price ceiling,

A shortage of a good arises when there is a binding price ceiling, that is when the quantity traded is always less than the efficient level,it leads to shortages.

Binding price ceiling occurs if it is set below an equilibrium level.

Q2. Option A is True.

In a perfectly competitive market with a binding price floor

The quantity traded will be greater

than the efficient level as the price floor is set above the

Equilibrium level,it will lead to surplus.