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.
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. a) Surplus b) Shortage c) No effect d) Fall in demand
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The correct choice is option b) Shortage. When the government imposes a price ceiling below the market equilibrium price, it makes the essential vaccine highly affordable, which sharply increases the quantity demanded by the public. However, the artificially lowered price reduces profits for pharmaceutical producers, causing them to supply less. This disparity between high demand and low supply inevitably creates a market shortage.
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