Question

If the government intervenes in a perfectly competitive market and imposes a price ceiling below the unregulated equilibrium price, then compared to the unregulated market, what will happen?

1) i. the quantity of the good demanded will increase and the quantity supplied will decrease
2) ii. the quantity of the good demanded will decrease and the quantity supplied will increase
3) iii. a shortage of units will result in the market
4) iv. a surplus of units will result in the market

Answer 1

When the government imposes a price ceiling below the unregulated equilibrium price in a perfectly competitive market, the quantity demanded increases, the quantity supplied decreases, and a shortage of units occurs.

Step-by-step explanation:

A price ceiling is a legal maximum price set by the government in a market. When the government imposes a price ceiling below the equilibrium price in a perfectly competitive market, several things happen:

1. The quantity demanded increases: When the price is lower, more consumers are willing and able to purchase the product, thus increasing the quantity demanded.
2. The quantity supplied decreases: Since the price ceiling prevents the price from rising to the equilibrium level, producers are discouraged from supplying as much of the product, leading to a decrease in the quantity supplied.
3. A shortage occurs: The quantity demanded exceeds the quantity supplied, resulting in a shortage in the market.

Therefore, in summary, when the government intervenes and imposes a price ceiling below the unregulated equilibrium price in a perfectly competitive market, the quantity demanded increases, the quantity supplied decreases, and a shortage of units occurs.