Question:
The market equilibrium price for wheat flour is Rs. 350 per kilogram and the market equilibrium quantity is 30 million kilograms. Which of the following policies would create an excess demand of wheat flour under this condition?
(1) Imposing a price ceiling of Rs. 330 per kilogram
(2) Imposing a price floor of Rs. 330 per kilogram
(3) Imposing a price ceiling of Rs. 400 per kilogram
(4) Imposing a price floor of Rs. 350 per kilogram
(5) Imposing a price ceiling of Rs. 375 per kilogram
Correct Answer:
(1)
Answer Explanation:
Excess demand (a shortage) is created when the government imposes an effective “Price Ceiling” (maximum price) below the natural equilibrium price. Setting a ceiling of Rs. 330, which is below the Rs. 350 equilibrium, restricts supply and encourages demand.
Topic: Price Control Year: 2022
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