Suppose the current equilibrium of pizza is $5. If the government decides the price of pizza cannot rise above $4, there would be:

a. a shortage of pizzas

b. no impact on the equilibrium price and quantity of pizzas

c. a rightward shift of the supply curve of pizzas

d. a rightward shift of the demand curve for pizzas

e. a surplus of pizzas

(A) a shortage of pizzas

Explanation:

Given an equilibrium price of $5 (where demand equals supply), a cap of $4 on the price of pizza by the government will result in the following.

demand for pizza will increase (as demand rises as price falls) supply of pizza will decrease (as supply falls as price falls).

Accordingly, there will be a shortage of pizza in the market as demand rises above equilibrium demand, and supply falls below equilibrium supply.