8. Suppose the government passes a law requiring the price to be no higher than \( \$ 20 \). What type of price control is this? What quantity is demanded? What quantity is supplied? What will be the initial result, and how large will that result be? QD \( = \) Result = shortage of Price Control = price ceiling Re_ Would a consumer or producer special interest group ask the government to impose the above price control? How would this group benefit?

To analyze the problem, let's break it down step by step. ### Known Conditions 1. The government has imposed a price control where the price cannot exceed \( \$20 \). 2. We need to determine the type of price control, the quantity demanded (QD), the quantity supplied (QS), and the resulting market condition (shortage or surplus). ### Step 1: Identify the Type of Price Control The price control set by the government is a **price ceiling**. A price ceiling is a maximum price set by the government, which prevents prices from rising above a certain level. In this case, the ceiling is set at \( \$20 \). ### Step 2: Determine Quantity Demanded and Quantity Supplied To find the quantity demanded and quantity supplied at the price ceiling, we would typically need the demand and supply equations. However, since these are not provided, we can discuss the general behavior: - **Quantity Demanded (QD)**: Generally, as the price decreases, the quantity demanded increases. Therefore, at a price of \( \$20 \), we can expect a higher quantity demanded compared to a higher price. - **Quantity Supplied (QS)**: Conversely, as the price decreases, the quantity supplied typically decreases. Thus, at a price of \( \$20 \), we can expect a lower quantity supplied compared to a higher price. ### Step 3: Analyze the Initial Result When a price ceiling is set below the equilibrium price (the price at which quantity demanded equals quantity supplied), the result is a **shortage**. This occurs because the quantity demanded exceeds the quantity supplied at the controlled price. ### Step 4: Conclusion on Shortage The size of the shortage can be calculated as: \[ \text{Shortage} = QD - QS \] Without specific demand and supply equations, we cannot calculate exact values for QD and QS, but we can conclude that there will be a shortage. ### Step 5: Special Interest Groups - **Consumer Interest Group**: Consumers would likely support the price ceiling because it makes goods more affordable, especially if the goods are necessities. - **Producer Interest Group**: Producers would generally oppose a price ceiling because it limits their ability to charge higher prices, which can reduce their profits. ### Benefits to Consumer Groups Consumer groups benefit from the price ceiling as it allows them to purchase goods at a lower price than they would in an unregulated market. This is particularly beneficial in times of high demand or low supply, where prices would otherwise rise significantly. ### Summary - **Type of Price Control**: Price ceiling - **Result**: Shortage (QD > QS) - **Consumer Benefit**: Lower prices for consumers, making goods more affordable. - **Producer Impact**: Reduced ability to charge higher prices, potentially leading to lower profits. If you have specific demand and supply equations, we can calculate the exact quantities demanded and supplied at the price ceiling.