Answer to Question #93460 in Microeconomics for Jessica Colon

Question

Hi, I have a question related to supply and demand theory. What happens when the demand of a product increases but there is a restriction that doesn't permit a rise in the prices? For example, during an emergency the prices of emergency articles freezes. We know that the demand of (let say water) will be higher but, what will happen with the curve of supply? What will be the change in the curve of supply and demand in comparison with the curve during normal situation?

Answer 1

In this case the demand curve will shift to the right, but the supply curve will not change. But a restriction that doesn't permit a rise in the prices will set the price below the equilibrium (price ceiling), so there will be a shortage in the market (Qd > Qs).