if government considered the market price too high

Question

if government considered the market price too high and passed a law setting the maximum price at $3, what would you expect to be likely result of this intervention?

Answer 1

A price ceiling stops prices in the market

from.soaring.

1 It causes consumers to make different choices along the demand curve.

2.It does not shift demand curve.

3. Quantity demanded and quantity supplied changes.

4. It creates shortages and dead weight loss.

Answer 2

If the government set a price ceiling of $3, we would be unable to determine the outcome based on the information given. We would need to know if the price ceiling is effective (below equilibrium market price) or ineffective (above equilibrium market price). If the price ceiling is effective, then the quantity demanded would exceed quantity supplied which would result in a shortage. If the price ceiling is ineffective, then nothing would change in the market.