There are a number of things that will happen to prices set below market equilibrium. They will cause a high demand and this will result in limited supply due to the low prices.
If the price ceiling is above equilibrium: no effect. If the price ceiling is below equilibrium: price lowers to the ceiling level and supply falls. There is too much demand for the current level of supply. A black market forms to capture unmet demand at high prices.
Quantity of demand increases and supplies decreases.
Market prices tend to an equilibrium where buyers' demand for the good is worth less than the sellers' cost of supplying the good. Put another way, buyers are willing to pay less than the amount producers are willing to accept. Government sets its prices above or below this point. If the price is above the equilibrium buyers will demand less than producers supply. On the other hand, if price is below the equilibrium sellers will supply less than buyers demand.
The market price is below the equilibrium price.
A price ceiling will undermine the rationing function of market-determined prices by creating a shortage. This is a price which is below equilibrium which will lead to more demand that supply that will cause a shortage.
If the price ceiling is above equilibrium: no effect. If the price ceiling is below equilibrium: price lowers to the ceiling level and supply falls. There is too much demand for the current level of supply. A black market forms to capture unmet demand at high prices.
Quantity of demand increases and supplies decreases.
Market prices tend to an equilibrium where buyers' demand for the good is worth less than the sellers' cost of supplying the good. Put another way, buyers are willing to pay less than the amount producers are willing to accept. Government sets its prices above or below this point. If the price is above the equilibrium buyers will demand less than producers supply. On the other hand, if price is below the equilibrium sellers will supply less than buyers demand.
The market price is below the equilibrium price.
A price ceiling will undermine the rationing function of market-determined prices by creating a shortage. This is a price which is below equilibrium which will lead to more demand that supply that will cause a shortage.
He or She will be arrested.
Excess Supply
The equilibrium quantity supplied is lower than the actual quantity supplied. The market price is below the equilibrium price.
When the market price is below its equilibrium value, with all else remaining equal, the demand for the good will rise, shifting the demand curve. The system will then move back into equilibrium with the new price and demand.
The most likely market response would be that competitors in the market would lower their prices to match or undercut the new price so they don't risk losing sales. If the competition is intense enough it could start a discount or price war resulting in prices continuing to fall.
A price ceiling is binding when it is below the equilibrium price. It is the legal maximum price, so the market wants to reach equilibrium (which is above that) but can't legally. If it were above the equilibrium price it would not be binding because the market would reach equilibrium and the ceiling would have no effect. A price floor is binding when it is above the equilibrium price. You can use similar reasoning to that above. It is the legal minimum price. the market wants to reach equilibrium below that but can't legally.
If the prices are set below the level of equilibrium, the quantity supplied will be less than the quantity demanded. Introduction of minimum prices will lead to hoarding of goods, thus social welfare falls.