Refer To Figure 6 2 The Price Ceiling Causes Quantity

Jane Haynes

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08-12-2024

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Figure 6.2, presumably illustrating a market equilibrium graph, shows the impact of a price ceiling on quantity. However, the question is incomplete. To accurately analyze the effect, we need to specify which quantity is affected. A price ceiling impacts both quantity demanded and quantity supplied.

Understanding Price Ceilings

A price ceiling is a government-imposed maximum price that can be charged for a good or service. Its intention is typically to make the good or service more affordable for consumers. However, the impact can be more complex than initially anticipated.

Impact on Quantity Demanded

When a price ceiling is set below the equilibrium price, the quantity demanded will increase. Consumers, facing a lower price, will purchase more of the good or service. This is represented on the graph by a movement along the demand curve to a higher quantity.

Impact on Quantity Supplied

Conversely, producers, facing a lower price, will be less willing to supply the good or service. This leads to a decrease in the quantity supplied. On the graph, this is shown by a movement along the supply curve to a lower quantity.

The Shortage

The crucial consequence of a price ceiling set below the equilibrium price is a shortage. The quantity demanded exceeds the quantity supplied, creating a gap in the market. This shortage can manifest in various ways, including:

• Longer waiting times: Consumers may have to wait longer to obtain the good or service.
• Black markets: Illegal markets may emerge where the good or service is sold at a higher price than the legally mandated ceiling.
• Reduced quality: Producers may reduce the quality of the good or service to maintain profitability under the price constraint.
• Rationing: Governments might introduce rationing schemes to allocate scarce resources more fairly.

Conclusion

Figure 6.2, therefore, likely illustrates that a price ceiling set below the equilibrium price causes a decrease in the quantity supplied and an increase in the quantity demanded, resulting in a market shortage. The specific numerical values would depend on the details presented in the figure. To fully understand the implications, examining the figure's specific data points is crucial for a complete analysis. Without seeing Figure 6.2, this explanation provides a general understanding of the effects of price ceilings.