What would price ceiling lead to when the maximum price is fixed lower than the equilibrium price?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Excess Demand.
A price ceiling is a government-imposed maximum price set below the market equilibrium price to make essential goods more affordable.
When this maximum price is fixed lower than the equilibrium price:
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The quantity demanded increases because the price is lower.
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The quantity supplied decreases because producers are less willing to supply at the lower price.
This creates a situation where demand exceeds supply, resulting in excess demand or shortage in the market.