The local government’s decision to impose a price ceiling on broadband Internet at $100 per month raises questions about its impact on the market. Price ceilings are a form of government intervention in markets, aimed at protecting consumers from excessively high prices. In this case, the government wants to ensure that broadband Internet remains affordable for its residents by capping the price at $100 per month. The current price of broadband Internet in the market is $85 per month. To analyze the impact of this price ceiling, we must consider the potential outcomes.

First, let’s address the concept of a price ceiling. A price ceiling is a legal maximum price set by the government, and in this scenario, it is set at $100 per month for broadband Internet. When the price ceiling is below the market equilibrium price (which is $85 per month in this case), it can lead to several economic consequences.

Shortage: When the price ceiling is below the equilibrium price, it creates a situation where the quantity demanded exceeds the quantity supplied at the capped price. In other words, more people want to purchase broadband Internet at $100 per month than the providers are willing or able to supply at that price. This results in a shortage of broadband Internet services.

Deadweight Loss: Deadweight loss occurs when the price ceiling distorts the market and reduces overall economic efficiency. In this case, it is likely to arise because the price ceiling prevents the market from reaching its equilibrium, where the quantity supplied equals the quantity demanded. As a result, some potential transactions that would have occurred at the equilibrium price of $85 per month no longer take place, leading to a loss in overall economic welfare.

Now, returning to the options presented:

No shortage but a deadweight loss: This option is not correct because, as explained earlier, the price ceiling creates a shortage in the market.

A shortage and a deadweight loss: This option accurately describes the situation in this market. The price ceiling of $100 per month results in a shortage of broadband Internet services, and there is also a deadweight loss due to the distortion of market efficiency.

A shortage but no deadweight loss: This option is incorrect because there is indeed a deadweight loss in this scenario, as explained above.

No shortage and no deadweight loss: This option is also incorrect because there is a shortage, and there is a deadweight loss in this market due to the price ceiling.

In conclusion, when the local government imposes a price ceiling of $100 per month on broadband Internet, it leads to a shortage in the market, as the quantity demanded exceeds the quantity supplied at that price. Additionally, there is a deadweight loss because the market fails to reach its equilibrium, resulting in reduced economic efficiency. Therefore, the correct characterization of this market is that it exhibits a shortage and a deadweight loss.