In the diagram above, the price P2 in price control situation, is referred to as

In the diagram above, the price P₂ in price control situation, is referred to as

Answer Details

In the diagram above, the price P2 in price control situation is referred to as the maximum price. Price control refers to the government's efforts to regulate the prices of goods and services in the market, usually to protect consumers from being charged excessively high prices by producers or sellers. When a maximum price is imposed, it means that the government sets a limit on how much a producer or seller can charge for a particular good or service. In the diagram, the maximum price P2 is set below the equilibrium price, which is the price at which the quantity demanded by consumers and the quantity supplied by producers are equal. When the government sets a maximum price below the equilibrium price, it creates a situation where the quantity demanded exceeds the quantity supplied, leading to a shortage of the good or service. In summary, the price P2 in the diagram above is referred to as the maximum price because it is the highest price that producers or sellers are allowed to charge for the good or service in the market, as set by the government through price control measures.