Pc Qc The following few questions relate to the supply and demand figure shown.

Question

Pc Qc The following few questions relate to the supply and demand figure shown. Equilibrium price and quantity before the price ceiling is imposed are indicated as P* and Q. The price ceiling is indicated as Pc. In the short run, the imposition of the price ceiling Pc will lead to what market condition: a shortage, a surplus, or unknown because not enough information is provided? Refer to the areas labeled in the figure to describe the effects of the price ceiling Pc on consumer surplus (for example, you might respond "consumer surplus increases by x" or "consumer surplus falls by y or "consumer surplus increases by x and falls by y") Again using the areas labeled, describe the effects of the price ceiling Pc on producer surplus.

Explanation / Answer

a) In the short run, the imposition of the price will lead to a "shortage" of goods. Because the demand is more than the supply at the lower price.

b) After the price ceiling the consumer surplus increase by "C" and decrease by "F".

c) After the price ceiling the producer surplus decrease "C" and "G".

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