ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The ceiling price is binding and causes the equilibrium quantity to change – quantity demanded increases while quantity supplied decreases. It causes a quantity shortage of the amount Qd – Qs. In addition, a deadweight loss is created from the price ceiling.

Detailed explanation-2: -Price ceilings prevent a price from rising above a certain level. When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied, and excess demand or shortages will result.

Detailed explanation-3: -Price ceilings that involve a maximum price below the market price create five important effects: Shortages, Reduction in Product Quality, Wasteful Lines and Other Search Costs, Loss of Gains from Trade & Misallocation of Resources.

Detailed explanation-4: -The price ceiling is binding if set below the equilibrium price, leading to a shortage.

Detailed explanation-5: -The increase in demand results due to lower prices for the products and services in the market. With the given circumstances in the market, firms become reluctant to produce more goods into the market. The decrease in supply and the increase in demand cause a significant shortage of commodities supplied.