Answer to Question #96989 in Microeconomics for Sheemaiah

Question

Assume that the government sets a price of $4 for fuel and the quantity is 35 million litres, what would be the effect on the market?

Answer 1

Market equilibrium

price $4

Fuel quantity 35 million ltr.

Market equilibrium is a market state where market supply is equal to market demand. The price of equilibrium is the price of a good or service when its supply is equal to its demand in the market.

the government totally handle this fuel market

• In this situation market elasticity in zero.
• supply shortage - When there is more demand- then quantity is demanded more than the quantity supplied. In this situation, consumers will not be able to buy as good as they would like.
• market surplus-A market surplus occurs when there is excess supply — the quantity supplied is greater than the quantity demanded. In this situation, manufacturers will not be able to sell all their goods.