CPA-BUSINESS practice question 4 of 35

Which of the following is incorrect with regard to government intervention in market operations?

Answer options

A: Government intervention may create a price different from the market price, thus causing either a surplus or a shortage.

B: A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop. Correct answer

C: Price floors are minimum prices established by law, such as minimum wages and agricultural price supports.

D: Rationing limits the availability of certain goods to a specified level, which lowers demand and prices for a given supply.

Correct Answer:

B. A price ceiling is a price that is established above the equilibrium price, which causes a surplus to develop.

Explanation

Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor. Choices "a", "c", and "d" are correct statements.

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