What happens when the government imposes a price ceiling below the equilibrium price?

When a government imposes a price ceiling that is set below the equilibrium price, it leads to excess demand in the market. This situation occurs because the price ceiling makes the good or service more affordable, encouraging consumers to purchase more. However, producers may be unwilling or unable to supply the same quantity at the lower price, resulting in a shortage.

At the equilibrium price, the quantity demanded equals the quantity supplied. When the price is capped below this point, consumers see a better deal and increase their demand, while producers respond to the lower price by supplying less. The disparity between the higher demand and lower supply creates this excess demand situation. Hence, consumers are often left competing for the limited goods available, and the market fails to clear, resulting in a shortage of the product in question.