Setting the price ceiling


Problem: The government has set price ceiling on "whatever the product is", so that there is a shortage. That industry complains to the government that the ceiling price is far below the equilibrium price. The issues would be quality sold = quality bought, the amount customers are prepared to buy at the ceiling price Qd, is significantly higher than the amount producers are disposed to sell Qs.

The difference QD-QS represents the amount of the shortage. Even though consumers stipulate the amount Qd at price Pc, they can get only amount Qs for sale price. Thus Qs is the amount actually bought and sold, and the demand for the additional quality QD -QS goes unfulfilled.

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Macroeconomics: Setting the price ceiling
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