Assume that policy makers in the state of California respond to the fury by residents of recent price hikes for the price of water and respond by capping water prices in 2010 to $.10 per gallon that they were a few years ago rather than what the market price otherwise would be at $.25 per gallon. Explain with the use of a graph what would happen if the state legislature were to impose such a price control.

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The Answer is <img src="https://d2lvgg3v3hfg70.cloudfront.net/TB2936/11eb113c_c5d0_afab_a29b_3b6cfccef6ce_TB2936_00.jpg" alt="  If the price had been set by the interaction of supply and demand instead, it would have increased to $.25 per gallon. However at $0.10 per gallon, the quantity demanded exceeded the quantity supplied. Because the price system was not allowed to function, an alternative rationing system likely would have to be found to distribute the available supply of water." class="answers-bank-image d-block" rel="preload" > If the price had been set by the interaction of supply and demand instead, it would have increased to $.25 per gallon. However at $0.10 per gallon, the quantity demanded exceeded the quantity supplied. Because the price system was not allowed to function, an alternative rationing system likely would have to be found to distribute the available supply of water.

Assume That Policy Makers in the State of California Respond