Final answer:
Setting the price of electric vehicles at $25,000 by the government, below the equilibrium price of $40,000, results in a shortage as demand exceeds supply. Producers lower production due to lower prices while consumers want to purchase more, leading to a market imbalance. This is an example of a government-imposed price ceiling affecting the electric vehicle market.
Step-by-step explanation:
When the government sets the price of electric vehicles at $25,000, lower than the market equilibrium price of $40,000, several economic effects can occur. First, there would be an excess of demand over supply, as consumers are willing to buy more electric vehicles at this lower price point than producers are willing to supply, resulting in a shortage.
Producers, facing a price below equilibrium, reduce the quantity supplied, while consumers increase the quantity demanded, exacerbating the shortage. This price control could be considered a government-imposed price ceiling. In this scenario, the market shifter affected is the government intervention in the form of a price control.
Producers may not have enough incentive to produce the needed quantity of electric vehicles due to the lower price, while consumers may face long waiting times or difficulty in purchasing a vehicle. The assumptions made here include a competitive market where many buyers and sellers interact freely and that the cost of production for electric vehicles remains constant at the new government-imposed price.