To determine the implications of a price ceiling in this scenario, let's break down the key economic concepts involved:
1. Equilibrium Price: At [tex]$4 per thousand cubic feet, the market for natural gas is in equilibrium. This means that at this price, the quantity of natural gas that producers are willing to supply equals the quantity that consumers are willing to buy.
2. Price Ceiling: A price ceiling is a regulation that sets a maximum allowable price for a good below its equilibrium price. In this case, the price ceiling is set at $[/tex]3 per thousand cubic feet, which is below the [tex]$4 equilibrium price.
3. Effect of a Price Ceiling: When a price ceiling is imposed below the equilibrium price, several impacts can typically be expected:
- Quantity Demanded: Consumers will want to purchase more natural gas at the lower price of $[/tex]3.
- Quantity Supplied: Producers will be less willing to supply natural gas at the lower price because it might not cover their production costs or yield the desired profit.
4. Market Outcome: Because the quantity demanded exceeds the quantity supplied at the price ceiling, there will be more buyers seeking natural gas than there are sellers willing to provide it at $3. This mismatch leads to a shortage.
Given the options:
- a. a surplus of natural gas: Surplus occurs when quantity supplied exceeds quantity demanded, which is not the case here.
- b. a shortage of natural gas: This is the correct outcome, as the lower price increases demand and decreases supply, resulting in a shortage.
- c. more natural gas available than what buyers want to buy: This describes a surplus, not applicable here.
- d. an accumulation of inventories of unsold gas: This also describes a surplus condition, which we would not expect with a price ceiling below equilibrium.
Therefore, the correct answer, based on the described economic analysis, is:
b. a shortage of natural gas.
