What effect does a price ceiling have on a market?

A price ceiling is a government-imposed limit on how high a price can be charged for a product. When a price ceiling is set below the market equilibrium price, it results in a situation where the maximum price consumers can pay is lower than what would naturally occur in the market. This can create a shortage because at this lower price, the quantity demanded by consumers typically exceeds the quantity supplied by producers.

Producers may not find it profitable to supply as much of the good at the reduced price, leading to a decrease in supply. Meanwhile, consumers are more likely to purchase the product because it is cheaper, increasing demand. The imbalance between the high demand and the reduced supply results in shortages, meaning there are not enough goods available to meet consumer needs at the price ceiling level.

The other potential outcomes mentioned in other answer choices either don't apply directly to the effects of a price ceiling or relate to different economic concepts. A price ceiling does not guarantee higher prices for consumers, nor does it create a surplus or a scenario where supply exceeds demand, which would be more relevant to price floors or other market interventions.