when goverment put a price ceiling, what happen to the demand and supply?

Question

I know that when we have a price ceiling, we have a shortage, but I want to know what happen to demand and supply?? is there any shift in the demand curve or a shift in the supply curve?

Answer 1

When there is a price ceiling and it is set above the equilibrium price there is not a change in supply in demand. However, sometimes companies will set their price to match the price ceiling this would cause demand to decrease due to a higher price, whereas supply would increase because suppliers could obtain a higher price. However, if the price ceiling is set below the equilibrium level then demand will increase because of the lower price, but supply will decrease because suppliers can no longer command the same price as before.

Answer 2

The answer to your question is NO, there is no shift in either the demand or supply curves. And here's why.

With a price ceiling, the government has basically stepped because they believe prices are simply too high in the market. To deal with this, they set a limit (ceiling) BELOW the equilibrium point saying this is the "maximum" prices can be.

So the maximum price that can be charged has been lowered, not due to market forces but rather governmental intervention. This simply means we've moved from the current equilibrium with a higher price and quantity to a lower price where the quantity demanded is higher and the quantity supplied is lower.

So the net effect is this:

(1) Consumer will demand more because the government has stepped in and set a lower price limit, and
(2) Suppliers will supply less because the price has been lowered.

Since there's not enough supply to meet the increased demand, we have a shortage.

Answer 3

For non-perishable items, some people might speculate that, when the Government changes, the price ceiling might be lifted. These speculators would want to buy a lot of the items in question in order to resell them later. This would result in an increase in demand. Simultaneously, businesses would cut back on their production, so prices would go up.

Answer 4

a price ceiling protects from inflation, supply and demand stay the same.