Does a price ceiling change the equilibrium price?

The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers. In other words, it is the price at which the market clears, with no excess demand or excess supply. This can be represented on a demand and supply graph, where the equilibrium price is found at the point where the demand curve intersects the supply curve.

A price ceiling is a government-imposed maximum price that can be charged for a product or service in a market. It is typically set below the current equilibrium price to make the product or service more affordable for consumers. This means that producers cannot charge a price higher than the price ceiling, even if the demand for the product or service would allow for a higher price, thus putting a cap on sellers' potential revenues.

When a price ceiling is imposed below the equilibrium price, this generally creates excess demand. Essentially, at the lower price, more consumers are willing to purchase the product or service, while at the same time, producers might reduce their supply since they cannot charge a higher price to cover their costs. In other words, demand increases while supply decreases, creating a shortage in the market.

When a price ceiling is imposed below the current equilibrium price, the new equilibrium price cannot be established at a level higher than the price ceiling. The market will experience excess demand and a shortage, but the price will not rise beyond the price ceiling. In this scenario, the equilibrium price will be effectively changed to the price ceiling level. It's important to note that this new "equilibrium price" is not a true market equilibrium but rather an artificially imposed price by the government. In conclusion, a price ceiling can change the equilibrium price if it is set below the current equilibrium price. It is essential to understand that this change in price is a policy-induced outcome, and it leads to market distortions such as excess demand and shortages.