To illustrate the impact of these interventions on our numerical market model for natural gas, let us suppose that the government imposes a minimum price of $6 – above the equilibrium price obviously. We can easily determine the quantity supplied and demanded at such a price. On the supply side:
P = 1+(1/2)Q.
Hence at P = 6 it follows that 6 = 1+(1/2)Q; that is 5 = (1/2)Q. Thus Q must take a value of 10, which is to say that suppliers would like to supply 10 units at this price.
Correspondingly on the demand side:
P = 10 - Q,
At P = 6, it follows that 6 = 10 - Q; that is Q = 4. So buyers would like to buy 4 units at that price: there is excess supply. But we know that the short side of the market will win out, and so the actual amount traded at this restricted price will be 4 units.
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