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?

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06-09-2022
Business

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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?

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Shivanijain4931idn Shivanijain4931idn · Answer 1 · 2022-09-08T23:51:42-04:00

A price ceiling (below the equilibrium price) increases demand and decreases supply. This is why price caps create shortages.

The price ceiling prevents the price from rising above a certain level. When the price cap is set below the equilibrium price, the quantity demanded exceeds the quantity supplied, resulting in excess demand or shortage.

We are introducing price caps for people who need products such as home, prescription drugs, and auto insurance. However, when the market price does not reach the equilibrium level, the quantity demanded exceeds the quantity supplied, resulting in a shortage of supply.

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