If the government required the actual market price to be fixed at $6 per unit in Figure 3.3, Figure 3.3 Shifts of Supply and Demand

Question

If the government required the actual market price to be fixed at $6 per unit in Figure 3.3,   Figure 3.3 Shifts of Supply and Demand

Quizplus · Accepted Answer

If the government sets a fixed price of $6 per unit, which is below the equilibrium price of $8, it will result in a binding or effective price ceiling. This is because the quantity demanded will exceed the quantity supplied at that price, leading to excess demand or a shortage. Sellers will not be willing to sell as much at the lower price, while buyers will be willing to buy more at the cheaper rate. This will lead to rationing of the product, long queues, and black markets, among other unintended consequences. Therefore, a binding price ceiling would be expected to result.

If the Government Required the Actual Market Price to Be