Answer to Question #237856 in Microeconomics for Boono24

Question

Harare- the Zimbabwean police warned last monday unscrupulous traders selling commodities at above the government stipulated prices that they risked being arrested if caught doing unlawful act.the warning comes in the wake of unjustified price increase of mealie meal in the past two weeks by millers without the approval of the government. how does this affect the price mechanism?use a supply and demand diagram to explain

Answer 1

Price ceilings are used in this case.

They aim at peeventing a price from rising above a given level.

When a price ceiling is set below the equilibrium price, quantity demanded will exceed quantity supplied and excess demand or shortages will arise.