True or False: Governments sometimes create an excess demand for a product by setting a maximum price that is less than the equilibrium price, resulting in a permanent excess demand for the product

Economics Dec 13, 2020

True or False: Governments sometimes create an excess demand for a product by setting a maximum price that is less than the equilibrium price, resulting in a permanent excess demand for the product. This is known as price ceiling.

Expert Solution

The given statement is TRUE

This is because the price ceiling imposes a maximum limit on the market price level of the product. Since the maximum price level is set below the equilibrium price, it leads to an increase in the real purchasing power of the consumers. An increase in the purchasing power increases the market demand level.

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