The following will occur when maximum price is fixed below the free market price EXCEPT that

Analyze the question: A maximum price (price ceiling) is set below the free market (equilibrium) price. We need the one outcome that does NOT happen.

Concept: A price ceiling below equilibrium creates a distortion:

• At the lower price, consumers want to buy more (quantity demanded rises).
• Producers are willing to supply less (quantity supplied falls).
• Result: quantity demanded > quantity supplied, which is excess demand, not excess supply.

Step-by-step check of each option:

• A. Black market will be encouraged: This happens. Since goods are scarce, some sellers sell illegally at higher prices.
• B. Excess demand will occur: This happens, as explained above.
• C. Excess supply will occur: This does NOT happen. Excess supply occurs when a minimum price (price floor) is set above equilibrium, such as with guaranteed minimum prices for agricultural produce.
• D. Rationing of commodities will occur: This happens. Government often introduces rationing or queuing to distribute the limited goods fairly.
• E. Scarcity of goods will occur: This happens, as supply falls short of demand.

Tip: Remember the pair:

• Ceiling (maximum price) below equilibrium → shortage (excess demand), black markets, rationing.
• Floor (minimum price) above equilibrium → surplus (excess supply).

Think "Ceiling = Crowd of buyers, few goods." Keep it up, you're doing great!