What would happen if the government set a ceiling on the price of gas? What could...

What would happen if the government set a ceiling on the price of gas? What could change in supply and demand, would you end up better off since the price is low, or would you end up without any gas because there is a shortage? Would it be feasible to think that doing so would lead to black markets?

Expert Solution

When government imposes a price ceiling on the price of gas. Then the price set would be less than the equilibrium price due to which the quantity supplied will be less than the equilibrium quantity but the quantity demanded would increase. In other words the quantity demanded will be greater than quantity supplied, this will create shortage in the market.

Please refer the attached picture below

Since, suppliers will not be ready to sell at the lower price. Quantity Demanded is more but supply is less therefore, the there are chances that suppliers will be charging higher than the price ceiling (although it is illegal).

Due to price ceiling consumers would end up without gas because there is shortage.

Yes due to prolonged shortage we can say it would lead to black marketing.

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Rahul Sunny answered 2 years ago

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