Refer to the accompanying figure, which shows both short-run and long-run demand and supply curves. If there is a $4 binding price ceiling imposed on a pharmaceutical drug, what will be the amount of the disequilibrium in the short run?
A) There will be a shortage of 1,500,000 units.
B) There will be a shortage of 800,000 units.
C) There will not be a shortage; there will be a surplus.
D) There will be a shortage of 2,000,000 units.
E) There will be a shortage of 500,000 units.

Question

Refer to the accompanying figure, which shows both short-run and long-run demand and supply curves. If there is a $4 binding price ceiling imposed on a pharmaceutical drug, what will be the amount of the disequilibrium in the short run? 
A) There will be a shortage of 1,500,000 units. 
B) There will be a shortage of 800,000 units. 
C) There will not be a shortage; there will be a surplus. 
D) There will be a shortage of 2,000,000 units. 
E) There will be a shortage of 500,000 units.

Quizplus · Accepted Answer

The equilibrium quantity is where the demand and supply curves intersect, which is 6 million units at a price of $6. However, with a binding price ceiling of $4, the quantity demanded will be greater than the quantity supplied, creating a shortage. To find the amount of the shortage, we look at the vertical distance between the quantity demanded at the price ceiling ($8 million units) and the quantity supplied at the price ceiling ($7 million units). This is a shortage of 1 million units. Therefore, the amount of the disequilibrium in the short run is 800,000 units (the difference between the equilibrium quantity of 6 million units and the quantity demanded of 7.2 million units at the price ceiling).

Refer to the Accompanying Figure, Which Shows Both Short-Run and Long-Run