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Question
Explain the chain effects, if the prevailing market price is below the equilibrium price.
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Solution
When the price is lower than the equilibrium market price of a good (OPe), the price ceiling leads to excess of demand. Now, the excess demand will increase the competition among consumers in the market. Thereby they consume the good at a higher price which leads to an increase in the price level, i.e. OPe.
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