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A-Level Economics · Maximum price diagram question

When does a maximum price actually cause a shortage?

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The diagram

The answer

Only when set BELOW the equilibrium price. Below equilibrium it binds: price can't rise to clear the market, so excess demand persists. A cap only bites if it sits BELOW equilibrium. Set above, the market price never touches it — a ceiling above your head.

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This is one of 6 questions on the maximum price diagram — every corner lettered, every wrong answer diagnosed.

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