Question

How does a price ceiling set below the equilibrium

level affect quantity demanded and quantity supplied?

Short answer

Whenever a price ceiling is set underneath the measurement level, the amount requested exceeds the quantity available, resulting in a market scarcity.

Step-by-step solution

.Definition of price ceiling

A price ceiling is an upper limit on the price of a product imposed by the government.

Step 2. Concept of price ceiling.

A price limit is when the government establishes a top price that a company can charge for a given item or service. These are done to make sure that consumers need not overpay and can maintain a reasonable price for their items.

Explanation of price ceiling with diagram.

The price ceiling is a price law that the government uses to determine the maximum price level in the market for vital goods such as medications and food products. It establishes a maximum price level in the market so that any consumer may afford the product.

Considering the following situation: the equilibrium price level is P_e, but the government imposes the highest price rule less than the optimum price point, at P_max. At the price P_max, the consumers demand a quantity of Q_D, but the suppliers are only willing to supply a quantity of Q_S. This results in a shortage of X_D.