Raising a Maximum Price (Price Cap)

Government Intervention · Micro
LearnWithOtti LearnWithOtti
www.learnwithotti.co.uk
Supply Demand Shortage 1 (old cap) Shortage 2 (new cap)
Cap raised from Pmax1 to Pmax2 (both below Pe): Qs rises, Qd falls, so the shortage shrinks from Qd1 − Qs1 to Qd2 − Qs2.