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 were to require the market price to be fixed at $6 per unit, a price ceiling would result because the government is placing a limit on how high the price can be. Since the equilibrium price in Figure 3.3 is $8, a price ceiling at $6 would be binding or effective because it would prevent the market from reaching its natural equilibrium. As a result, there would likely be a shortage of the product as the quantity demanded exceeds the quantity supplied at the artificially low price.

If the Government Required the Actual Market Price to Be