Final answer:
An increase in price in a market with an effective price ceiling will decrease the quantity demanded, but as a legal restriction, a price ceiling does not allow the price to exceed a set maximum and therefore cannot increase to balance the market. This results in increased quantity demanded, decreased quantity supplied, and a market shortage.
Step-by-step explanation:
An increase in price in a market with an effective price ceiling will decrease the quantity demanded and increase the quantity supplied. However, since the price ceiling is a legal maximum price that can be charged, the actual price cannot legally go above it to clear the market. Thus, in the case of an effective price ceiling, an increase in price is not a possibility. When a price ceiling is set below the equilibrium price, it prevents the price from rising to its natural equilibrium level, resulting in a higher quantity demanded and a lower quantity supplied, causing a shortage.
The price ceiling is just a legal restriction; it does not change the equilibrium price or increase the actual market price, but it does create imbalances in the market. The quantity demanded rises because the lower price encourages consumers to purchase more, while the quantity supplied falls because producers may not be able to cover the costs at that price, leading them to supply less. This discord between higher demand and lower supply under the price ceiling condition gives rise to a shortage in the market.