Question

Suppose the equilibrium price of a physical examination by a doctor is $200, and the government imposes a price ceiling of $150 per physical. How would this price ceiling affect the quantity demanded and the quantity supplied of physicals?

Answer 1

A price ceiling set below the equilibrium price increases the quantity demanded of a service and decreases the quantity supplied, leading to a shortage of the service in the market.

Step-by-step explanation:

When a government imposes a price ceiling that is below the equilibrium price, it sets a maximum price that is less than what the market would naturally set through supply and demand forces.

Suppose the equilibrium price of a physical examination by a doctor is $200, but the government imposes a price ceiling of $150. This intervention typically leads to an increase in quantity demanded for physical exams since consumers are willing to purchase more at a lower price. However, it usually results in a decrease in quantity supplied, as doctors might not be willing to provide as many exams at the lower price, leading to a potential shortage in the market.

In summary, a price ceiling set below the equilibrium level creates a market condition where the quantity demanded exceeds the quantity supplied, causing a shortage of the good or service in question.