Question

what might the price rise indicate about either the demand for or the supply of the product? if price were not allowed to rise what might be the undsirable result?

Answer 1

There is inverse relationship between price and demand. The higher the price will be the lower will be quantity demanded by consumers and vice versa. The demand curve is negatively sloped which reflect that lower the price higher will be the quantity demanded. Whereas the tradeoff between supply and price is positive, which means that as price increases, producers are ready to supply more in the market and vice versa. The supply curve is positively sloped. The level at which demand and supply curve intersect is equilibrium point where demand is equal to supply. I

If the market is restricted with price controls and is not allowed to rise, the result will be shortage in the market. The setting of price ceiling, which is used to restrict the price to achieve equilibrium will cause shortage of goods in the market as sellers are less willing to supply good at lower price, where market demand exceeds the supply. This outcome will result in undesirable result or black market for that good.