If government fixes price below the equilibrium price, what effect will it have on demand?

Answer Details

If the government fixes a price below the equilibrium price, it creates a situation where there is excess demand or shortage in the market. This means that at the fixed price, the quantity demanded will be more than the quantity supplied. In other words, there will be a situation where buyers will be willing to buy more of the product at the fixed price, but suppliers will not be willing to supply as much as buyers want. This is because the price is not high enough to cover their production costs or to make a profit. Therefore, the correct answer is that quantity demanded will increase as consumers respond to the lower price, while quantity supplied will be less than quantity demanded, resulting in a shortage of the product.