Question

Suppose the government sets a maximum sale price for an essential vaccine below the market-driven price. What is likely to happen? Choose from the options below and elucidate your point.

Options

• Surplus

• Shortage

• No effect

• Fall in demand

Answer 1

Shortage

Explanation:

If the government sets the maximum price below the market price, it creates a price ceiling. At the lower price, demand for the vaccine increases, while producers are less willing to supply it. As a result, quantity demanded becomes greater than quantity supplied, causing a shortage.