Price Ceiling with Rightward Supply Shift

Steps:

• Initial equilibrium occurs at price P, where original demand intersects original supply.
• Price ceiling at P_max is imposed, potentially limiting price below P if binding.
• Supply shifts right to S1, increasing quantity supplied at each price and lowering the equilibrium price.
• New equilibrium forms at intersection of demand and S1, provided P_max exceeds this new price, allowing market clearing.

Why A is correct:

• With supply increase, the new demand-S1 intersection establishes a stable equilibrium if the ceiling is non-binding (above new price), per supply-demand law.

Why the others are wrong:

• B: Shortage occurs only if ceiling binds below new equilibrium; here, supply shift prevents it.
• C: Surplus requires ceiling above equilibrium without demand change; supply increase avoids excess.
• D: Illegal market develops from binding shortages; non-binding ceiling eliminates need.

Final answer: A