Price ceiling (excess in demand, shortage in supply)

Question 1

Look at diagram

Answer 1

Look at diagram

Question 2

What is called a price ceiling

Answer 2

When the government stipulates a maximum price this is termed a price ceiling (for goods, services, or factors of production)

Question 3

Although price ceiling/ maximum prices usually..

Answer 3

Enable greater affordability to consumers, they tend to result in a situation where a shortage exists. This means that consumers may be unable to attain the desired quantity of the good in question example, rent control, housing, prescription drugs (CDAP)

Question 4

What happens in the diagram above

Answer 4

Consumers and producers will agree to the eq. price of $4. However the government thinks that this price is too high so they set the price at $3. Hence, $3 is the maximum price that the producers can charge. It is also known as a price ceiling.