Suppose the price ceiling goes into effect in October. In December, it gets unusually cold and demand for natural gas increases (see image below). This increase in demand will cause excess demand to get larger . Due to the price ceiling, the price in the market remains unchanged. In the absence of the price ceiling, price would have risen .

Question

BlackTom AI · Accepted Answer

The scenario describes a price ceiling that prevents the price from rising even when demand increases due to unusually cold weather. We need to evaluate each statement in light of standard supply and demand dynamics under a binding price ceiling.
Option A: "excess demand to get larger". Under a binding price ceiling, the quantity demanded exceeds the quantity supplied at the ceiling price whenever demand rises, because the ceiling keeps price artificially low and prevents market-clearing. When demand increases, the gap between quantity demanded and quantity supplied widens, so excess demand grows. This option correctly identifies the directional change in the shortage as demand surges but price cannot rise to restore equilibrium.
Option B: "risen". The statement concerns what would have happened to price in the absence of the price ceiling. As demand increases (due to colder weather), in a free market (without a price ceiling), the price would rise to clear the market and reduce the excess demand. Since the ceiling prevents price from rising, the actual price remains fixed at the ceiling level; thus, the price would have risen only if the ceiling were not in place. Therefore, this option captures the behavior absent the ceiling, not the observed condition with the ceiling.
In addition, understanding the role of price ceilings helps distinguish the two ideas. The binding ceiling pins the price below the market-clearing level, creating a larger gap between quantity demanded and quantity supplied when demand shifts right. If the ceiling were removed, the new equilibrium price would move up, reducing excess demand that exists under the ceiling. 
Therefore, the reasoning leads to the conclusion that Option A describes the change in excess demand, while Option B describes the price path in the absence of the ceiling. The two statements are related but describe different hypothetical or observed scenarios within the model.

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