Answer to Question #207278 in Microeconomics for Hoor

Question

Assume perfectly competitive CNG market if government intervention in market mechanism and set the price below the market clearing level what will be the resulting outcome of this policy?

Answer 1

When a price floor is set higher than the equilibrium price, the amount supplied exceeds the quantity required, resulting in excess supply or surpluses. Price control occurs when government rules limit prices rather than allowing market forces to set pricing.