will a surplus or a shortage caused by a price control becom

will a surplus or a shortage caused by a price control become smaller or larger over time explain

Solution

ANSWER:

will a surplus or a shortage caused by a price control become smaller or larger over time

The surplus/ shortage caused by a price control become larger over time. Equilibrium is determined by the forces of demand and supply. A surplus i.e. excess supply will occur at prices above the equilibrium. A shortage i.e. excess demand will occur at prices below the equilibrium. Sliding along a demand or supply curve is due to a change in the price of the product.

At a price of $30, producers supply 40 million units and consumers purchase 40 million units, thus the the equilibrium quantity is 40 million and the equilibrium price is $30. At any price below $30, the quantity demanded will be more than the quantity supplied, thus creates a shortage. The shortage provides sellers an incentive to increase the price until it reaches the equilibrium point, E. If price is above $30, the quantity supplied will be more than the quantity demanded, thus creates surplus. The surplus provides sellers an incentive to reduce the price until it reaches the equilibrium point, E.