Question

What would be the initial change in the market for beer if a city suddenly restricted the number of bar licenses they permitted? (Note: A bar requires a licenses to operate.)

Answer 1

Bars acts as the supplier of the beer.

So, if a city suddenly restricts the number of bar licenses they permit then it will reduce the number of suppliers of beer.

This will result in the decrease in supply of beer in the market for beer.

At the current equilibrium price, this decrease in supply will result in quantity demanded exceeding the quantity supplied.

When quantity demanded exceeds the quantity supplied at a price, there is shortage in the market.

So,

Initially, there will be decrease in supply of beer and shortage of beer in the market for beer if a city suddenly restricts the number of bar licenses they permitted.