If the Government fixes the price of this product at $2 explain what would happen in the market.
Draw a supply and demand curve for "this" product. Is the fixed price above or below the market equilibrium? Depending on how you answer, there should be a shortage or a suplus of "this" good.
if prices are set below the equilibrium consumer surplus will increase
To understand what would happen in the market if the government fixes the price of a product at $2, we need to analyze the supply and demand curves for the product. Let's go through the steps:
1. Draw the supply curve: The supply curve represents the relationship between the quantity of a product that producers are willing to supply and the price of the product. It slopes upward from left to right, indicating that as the price of the product increases, producers are willing to supply more of it. Label this curve as "Supply."
2. Draw the demand curve: The demand curve represents the relationship between the quantity of a product that consumers are willing to buy and the price of the product. It slopes downward from left to right, indicating that as the price of the product decreases, consumers are willing to buy more of it. Label this curve as "Demand."
3. Identify the market equilibrium: The market equilibrium occurs where the supply curve and the demand curve intersect. At this point, the quantity supplied equals the quantity demanded, resulting in no shortage or surplus of the product. Label this point as "Equilibrium Price" and "Equilibrium Quantity."
4. Determine the fixed price: In this case, the government has fixed the price of the product at $2. Compare this fixed price to the equilibrium price. If the fixed price is above the equilibrium price, it implies the government has set the price higher than what the market would naturally determine. This would lead to a surplus of the product. If the fixed price is below the equilibrium price, it implies the government has set the price lower than what the market would naturally determine. This would lead to a shortage of the product.
Without having specific information on the market equilibrium and the fixed price, it is difficult to determine whether there would be a shortage or a surplus of the product. However, based on the information given, you can compare the fixed price with the equilibrium price on your graph to determine the outcome in the market.