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Question Completion Status: QUESTION 18 Price (per gallon) $5 S1 4 S2 3 2.50 2 1.50 D 0 100 200 300 400 500 600 Quantity of g
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Answer #1

Correct option is: Pressures the price to rise.

The market is in equilibrium with S1 where, equilibrium price is $2.50 & quantity demanded is 300. If the price was set at $2.00, then it will create shortage in the market because quantity demanded will be greater than quantity supplied. Quantity demanded will be 350 & quantity supplied will be 250, so, there will be a shortage of 100. Due to shortage, the market price will rise. So, when price is fixed below equilibrium price, there is pressure on price to rise due to shortage in the market.

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