High School

If the equilibrium price of solar panels is $200 per panel, but a price ceiling of $150 per panel is imposed, what happens to the market for solar panels?

Answer :

In the market for Solar Panels the quantity demanded exceeds quantity supplied and a shortage occurs.

A situation of excess demand is said to arise in the market when, at the current price level, there is a greater demand than supply. At a price lower than the equilibrium price, there is excess demand. As a result of the falling prices, consumers would be lured into the markets, which would fuel competition among them. Price increases would result from this competition. The law of supply and demand will work to reduce demand as prices rise, and customers will begin to disappear. As a result of the higher prices, suppliers may raise their output in an effort to boost earnings.

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