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Chapter 3: Q.28 (page 78)

How does a price ceiling set below the equilibrium

level affect quantity demanded and quantity supplied?

Short Answer

Expert verified

Whenever a price ceiling is set underneath the measurement level, the amount requested exceeds the quantity available, resulting in a market scarcity.

Step by step solution

01

.Definition of price ceiling

A price ceiling is an upper limit on the price of a product imposed by the government.

02

Step 2. Concept of price ceiling.

A price limit is when the government establishes a top price that a company can charge for a given item or service. These are done to make sure that consumers need not overpay and can maintain a reasonable price for their items.

03

Explanation of price ceiling with diagram.

The price ceiling is a price law that the government uses to determine the maximum price level in the market for vital goods such as medications and food products. It establishes a maximum price level in the market so that any consumer may afford the product.

Considering the following situation: the equilibrium price level is Pe, but the government imposes the highest price rule less than the optimum price point, at Pmax. At the price Pmax, the consumers demand a quantity of QD, but the suppliers are only willing to supply a quantity of QS. This results in a shortage of XD.

price ceiling graph

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Most popular questions from this chapter

What does a downward-sloping demand curvemean about how buyers in a market will react to a higher

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In an analysis of the market for paint, an economist discovers the facts listed below. State whether each of these changes will affect supply or demand, and in what direction.

  1. There have recently been some important cost-saving inventions in the technology for making paint.
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