Understanding the Impact of Price Ceiling in Economics

How does a price ceiling affect the supply in economics?

a) It shifts the demand curve

b) It causes a movement along the supply curve

c) It increases the equilibrium price

d) It decreases the quantity demanded

Answer:

The correct answer is option b) It causes a movement along the supply curve.

In economics, a price ceiling is a legal maximum on the price at which a good can be sold. When a price ceiling is set below the equilibrium price, it mainly affects the amount suppliers are willing to provide, leading to a movement along the supply curve to a lower quantity supplied at the capped price.

A price ceiling does not directly shift the demand curve but can create a shortage in the market. This is because at the maximum price set by the ceiling, the quantity demanded by consumers exceeds the quantity that suppliers are willing to provide. Suppliers may reduce the quantity they supply due to the price constraint imposed by the ceiling.

Therefore, a price ceiling influences supply by causing movements along the supply curve rather than shifting it. Understanding the impact of price ceilings is essential in analyzing market dynamics and the effects of government interventions in regulating prices.