What is the effect of a price ceiling on the quantity demanded of the product? What is the effect of a price ceiling on the quantity supplied? Why exactly does a price ceiling cause a shortage?

A price ceiling is a government-imposed limit on the price that can be charged for a good or service in the market. It is usually set below the equilibrium price, which prevents the price from rising above that level. This policy is often implemented to protect consumers from high prices that may result from a market failure or a lack of competition.

When the price ceiling is set below the equilibrium price, the quantity demanded of the product will increase. This is because, according to the law of demand, as the price of a product decreases, the quantity demanded by consumers increases, all else being equal. So, when the price is artificially lowered by a price ceiling, consumers would want to buy more of the product at the lower price.

On the other hand, when the price ceiling is set below the equilibrium price, the quantity supplied of the product would decrease. According to the law of supply, as the price of a product decreases, producers are less willing and able to supply the product, all else being equal. So, when the price is artificially lowered by a price ceiling, producers would be less willing to produce and sell the product at the reduced price.

A price ceiling causes a shortage because it disrupts the natural balance between demand and supply. When the price ceiling is set below the equilibrium price, the quantity demanded exceeds the quantity supplied. This is because consumers want to buy more at the lower price, but producers are not willing to supply as much at the reduced price. As a result, there are more buyers than there are products available, which leads to a shortage. In summary, a price ceiling, set below the equilibrium price, increases the quantity demanded and decreases the quantity supplied of a product. This causes an imbalance in the market, leading to a shortage as there are not enough products available to meet the increased demand from consumers.