Micro

Market Equilibrium

Easy

Comprehension:

Read the passage carefully and answer the questions based on the passage:

Concept of Price Ceiling

It is not very uncommon to come across instances where the government fixes a maximum allowable price for certain goods. The government-imposed upper limit on the price of a good or service is called a price ceiling. A price ceiling is generally imposed on necessary items like wheat, rice, kerosene, sugar etc. The objective of the price ceiling is to restrict the price of a good so that it becomes affordable for consumers to buy. However, it does not always generate the desired results. Most of the time, intervention by the government in the form of a price ceiling leads to various socio-problems.

The market determined price of a good is Rs. 40.The government determines the price ceiling on the good as Rs. 25. Calculate the excess demand/excess supply it will cause if the demand and supply functions are Qd= 200 – p and Qs=120+ p respectively.

Excess demand of 25 units.

Excess supply of 25 units.

Excess demand for 30 units.

Excess supply of 30 units.

✅ Correct Option: 3

Option 1 -> At price ceiling Rs. 25: Qd = 200-25 = 175, Qs = 120+25 = 145. Excess demand = 175-145 = 30 units, not 25.

Option 2 -> Price ceiling below equilibrium creates shortage (excess demand), not excess supply.

Option 3 -> At price ceiling Rs. 25: Qd = 200-25 = 175, Qs = 120+25 = 145. Excess demand = 175-145 = 30 units.

Option 4 -> Price ceiling below equilibrium creates shortage (excess demand), not excess supply.

Hence, Excess demand for 30 units -> A price ceiling is a maximum price set below the equilibrium price. At Rs. 25 (below equilibrium Rs. 40), quantity demanded (175 units) exceeds quantity supplied (145 units), creating excess demand of 30 units. This shortage occurs because consumers want to buy more at the lower price, but suppliers are willing to supply less -> correct

Question 46

Imposition of price ceilings usually results into?

Question 47

Suppose the market determined rent for apartments is $200 per month. The government intervenes and sets the rent control at $250 per month. What is the likely impact of this intervention on market of apartments?

Question 48

Price ceilings are also known as............

Question 50

In order to be effective, the price ceiling should be determined _______.

The market determined price of a good is Rs. 40.The government determines the price ceiling on the good as Rs. 25. Calculate the excess demand/excess supply it will cause if the demand and supply functions are Qd= 200 – p and Qs=120+ p respectively.

Solution

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