Currently, 75,000 units of a good are traded on a market. The government imposes a limit of a maximum of 50,000 units that may be traded on the market. This will raise price.

Question

Quizplus · Accepted Answer

With the government-imposed limit, the quantity of the good that can be traded on the market is reduced from 75,000 units to 50,000 units. This decrease in supply (assuming demand remains constant) will lead to an increase in the equilibrium price of the good. When the government imposes a limit on the quantity that can be traded in a market, this reduces the supply of the good. With a reduction in supply, there is a higher demand for the good, resulting in an increase in price. Therefore, it is true that imposing a limit of 50,000 units on a market where 75,000 units are currently traded will raise the price.

Currently, 75,000 Units of a Good Are Traded on a Market