Price regulation prevents some people from buying a good who value that good more than it costs to supply it. Apply this proposition to Figure 11.3, assuming that the state sets the price at p1 and S' gives the supply. What is the impact of price regulation on the quantity demanded and quantity supplied?
1) Quantity demanded will increase and quantity supplied will decrease
2) Quantity demanded will decrease and quantity supplied will increase
3) Quantity demanded and quantity supplied will both increase
4) Quantity demanded and quantity supplied will both decrease