Praxis II Citizenship

Answer: D - If the government established a price ceiling for cotton that was below the equilibrium price, the demand for cotton would increase. An equilibrium price is the price point for a good or service at which supply of and demand for the good or service are equal. For example, if cashmere sweaters cost $1, the demand for cashmere sweaters would exceed the supply. If the sweaters cost $10,000, the supply of sweaters would exceed the demand. By pricing cashmere sweaters around $150, there are roughly as many people who want to buy the sweaters as there are sweaters available to buy. A price ceiling sets a maximum price for a good or service. If a price ceiling for a product is lower than that product’s equilibrium price, the demand for the product will increase or exceed the supply.