Answer to Question #96989 in Microeconomics for Sheemaiah

Question #96989
Assume that the government sets a price of $4 for fuel and the quantity is 35 million litres, what would be the effect on the market?
Expert's answer

Market equilibrium

price $4

Fuel quantity 35 million ltr.

Market equilibrium is a market state where market supply is equal to market demand. The price of equilibrium is the price of a good or service when its supply is equal to its demand in the market.

the government totally handle this fuel market

  • In this situation market elasticity in zero.
  • supply shortage - When there is more demand- then quantity is demanded more than the quantity supplied. In this situation, consumers will not be able to buy as good as they would like.
  • market surplus-A market surplus occurs when there is excess supply — the quantity supplied is greater than the quantity demanded. In this situation, manufacturers will not be able to sell all their goods.

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