Yes, excessive regulations can create severe supply shortages, discourage business investment and harm market efficiency. Setting prices below production costs reduces output, while complex licensing and bureaucratic hurdles burden small businesses and stifle innovative ventures.
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Price controls are implemented on life-saving medicines, hand sanitisers, basic food grains and agricultural minimum support prices. Governments cap prices to prevent hoarding and exploitation, while price floors protect farmers from incurring losses.
The correct option is b) Shortage. Imposing a price ceiling below equilibrium makes the vaccine cheaper, substantially increasing consumer demand. Simultaneously, lower profit margins discourage manufacturers from producing it, creating an excess demand or shortage.
Sellers lower prices to expand market demand and boost sales volume. Lower prices create temporary excess demand, shifting equilibrium toward higher quantities. Both benefit because buyers save money while sellers increase total revenues.
The farmer cost of production decreases substantially due to reduced resource usage and higher efficiency. Consequently, his willingness to supply at various prices increases and widespread adoption increases the overall market supply.