Question 45
Price DeterminationThe diagram above shows the effect of
- A.maximum price legislation at P2
- B.minimum price legislation at P2
- C.excess supply over demand at q2
- D.excess demand over supply at q2
Show the answer and explanation
Answer: A (maximum price legislation at P2)
Explanation
P2 is a price ceiling set below the equilibrium price P1, which is maximum price legislation; it causes a shortage of q2 − q3.