Question 8 / 49:
The textbook claims that price ceilings (a) cause immediate shortages and (b) lower long-run supply. What's the difference?Use a specific example to illustrate.
A price ceiling pushes down the price from its equilibrium level, moving along the original supply curve to a lower quantity supplied
(and a higher quantity demanded). This is the immediate shortage, for example a million people might try to find apartments
but only 800,000 are offered on the market. In the long run, investors don't build as many new apartment buildings
because of the price ceiling, so that the whole supply curve of apartments shifts to the left, or at least doesn't shift to the right as much as it otherwise would have.
Sample Partial Credit Answer
A price ceiling pushes us along the original supply curve in the
short run, and moves the supply curve in the long run.
