- At first, the price is P0 and the
quantity demanded is Q0.
- The government
sets the ceiling price P1.
- This is creates shortage of a
commodity since quantity demanded
exceeds quantity supplied.
Impact of government setting ceiling price
THE MARKET EQUILIBRIUM
The Effect of Government Subsidies of
- Market equilibrium is at E0
- The original demand and supply at D0 and P0
- The original price is P0 and the original quantity is Q0
- When the government provides a supply-side subsidy
to the farmers of a product, the supply curve shifts to
the right from S0 to S1
- The new market equilibrium from E0 to E1
In conclusion,the ceiling price have a lot of shortage
since quantity demand is greater than quantity supply
The subsidies provided by the government and it will
make the amount of supply increase
It will help to keep the good prices at market