If the price of a product changes due to government regulation, the supply and demand graph for that product will also change. The specific changes depend on the nature of the regulation, but here are a few possibilities:
- If the regulation imposes a price ceiling (a maximum price that can be charged for the product), the graph will show a horizontal line at the ceiling price below the intersection of the supply and demand curves. This will create a shortage of the product, as demand will exceed supply at the ceiling price.
- If the regulation imposes a price floor (a minimum price that must be charged for the product), the graph will show a horizontal line at the floor price above the intersection of the supply and demand curves. This will create a surplus of the product, as supply will exceed demand at the floor price.
- If the regulation imposes a tax on the product, the supply curve will shift upward by the amount of the tax, since producers will need to receive a higher price to cover the cost of the tax. This will result in a higher equilibrium price and a smaller quantity of the product being exchanged.
- If the regulation provides a subsidy for the product, the supply curve will shift downward by the amount of the subsidy, since producers will be willing to supply more of the product at any given price. This will result in a lower equilibrium price and a larger quantity of the product being exchanged.