If the government fixes the maximum price of a good (price ceiling) below its equilibrium price, what will happen in the market for that good?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Excess demand (shortage)
At a price below the equilibrium price, consumers want to buy more and producers offer less, so the quantity demanded exceeds the quantity supplied: there is excess demand. A fixed price does not shift the demand curve; buyers simply move along it. This is why such goods are often given through rationing.