A price ceiling and a shortage: a simple market model

DEMO STUDY NOTE — All numbers are synthetic. This original teaching example is not an empirical research finding, an official Cambridge resource or an exam mark scheme.

Topic reference: Cambridge International AS & A Level Economics (9708), 2026–2028; AS Level topics 2.4 and 3.2.

Question

What changes when a maximum price is set below the market-clearing price? Use an illustrative market with demand Qd = 100 − 2P and supply Qs = 20 + 2P. Prices are currency units per item and quantities are items per period.

Worked example

Equating demand and supply gives 100 − 2P = 20 + 2P, hence P = 20 and Q = 60. At a ceiling of 15, buyers want 70 items but sellers offer 50. Excess demand is 20 items. With no other intervention, actual transactions cannot exceed the 50 items supplied.

Evaluation

Some buyers who obtain the product pay less, while others cannot obtain it. Queuing, rationing and reduced quality may arise. The outcome depends on enforcement, allocation rules and whether government adds supply. The model holds income, costs and other determinants constant and makes no empirical claim about a particular country.

Try it

Set the ceiling at 25. Explain why it is non-binding: the market can still clear at 20. Compare a price ceiling with targeted assistance to buyers, considering both affordability and supply incentives.

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Syllabus topic reference: Economics 9708, 2026–2028. These four examples cover selected topics only. Check your school’s AS/A Level course and examination year.