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CUET Economics 2025 PYQs21 May Shift 1. Free, no login required.

Micro

past year questions, CUET Economics 2025 21 May Shift 1

Market Equilibrium

past year questions, Micro, CUET Economics 2025 21 May Shift 1

Easy

Comprehension:

FLOOR PRICES

For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these goods and services. The government imposed lower limit on the price that may be charged for a particular good or service is called price floor. Most well-known examples of imposition of price floor are agricultural price support programmes and the minimum wage legislation. Through an agricultural price support programme, the government imposes a lower limit on the purchase price for some of the agricultural goods. Similarly, through the minimum wage legislation, the government ensures that the wage rate of the labourers does not fall below a particular level.

The market determined wage rate is $500 per month whereas the minimum wage fixed by the government is $$450 per month. As a result of this government intervention,

Solution

✅ Correct Option: 3

Option 1 -> The minimum wage is below market rate, so wages won't fall from the equilibrium level.

Option 2 -> The minimum wage being below market rate provides no incentive for wages to rise.

Option 3 -> Since the minimum wage ($450) is below the market equilibrium wage ($500), it is non-binding and has no effect.

Option 4 -> Unemployment only increases when minimum wage is set above equilibrium, not below it.

Hence, Option 3: The wage rate will remain unaffected -> A minimum wage is only binding (effective) when set above the market equilibrium wage. In this case, the market wage of $500 already exceeds the government's minimum wage floor of $450. Since employers are already voluntarily paying $500 (the market-clearing rate), the $450 minimum wage requirement is non-binding. The market continues to operate at its natural equilibrium of $500, making the government intervention ineffective. This is why the wage rate remains unaffected. -> correct

More from this set:

Question 41

The market determined price of a good is Rs. 40.The government fixes the minimum price of the good as Rs. 50. Calculate the excess demand/excess supply it will cause if the demand and supply functions are Qd = 200 – p and Qs = 120 + p respectively.

Question 42

Floor prices are meant for the welfare of

Question 43

Imposition of price floors usually lead to following

Question 44

To be effective, the floor price should be determined

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