Assume that the equilibrium price of a gallon of gas is $1.40 per gallon. The government decides to place a price ceiling on gasoline & will not let sellers to charge more than $1.50 per gallon. Draw this using a graph. Ensure that you illustrate the original equilibrium and the effect of the price ceiling on the market. What will occur in this market?
There will be no influence of this price ceiling on the market. If sellers attempt to charge a price of $1.50 per gallon, quantity demanded (QD) would be lower than quantity supplied (QS). It means that there would be a surplus. As the price ceiling is a maximum price, it does not stop the price from falling as it would in this case. Thus, the price of gasoline will remain $1.40 per gallon.
