Question

Quantty . Ratar toa abova diazram A m-aat price foor i bellaratad by A price A. B.quantiy E C.price C D parica B. 2. Ir govems the legal price for s produc below e makeequilbeium price, tha A. Demand will increase B. Supplywill decrease D Quatity demanded grathaa quaerity suppliea Waich ot tha tooing a cormect satnt? A Price ceilings increase Gemand B. Price celings create surpiuses C. Price loors creae surplases D. Drice tecra ncreaie afFy A. Sets a price ceiling for the product abone the curent equilibriam price B. Sets a paice loor or theproduct bove the curentequilibi price C Sati apaica floor or the produc balon the curant oquilibriu pric D. Subaidi a compltry product aaidaatisl ren A Poor people ll be able to find aSequane bousing B. Teman will reduce theu:e of houinz space, makmcre railable for oer C. Thoe whoa reads toe hoaiing are mcat urgent will b abla to oban tha paca they zr D. Peopla moving into the commaity wl ha aimty locating reinal agace tD ช. If price dor abore the equitbrtam price li imposed by govane at in āmakat A Shonages of the commodity will deelop B. The quantity demanded will exceed the quantity supplied C. The quancity supplied will eceed the qantity demanded

Answer 1

Question 1

A price floor can only be binding if it is fixed above the equilibrium price.

So,

Refer to the above diagram, a government-set price floor is best illustrated by price C (this price is greater than the equilibrium price).

Hence, the correct answer is the option (C).

Question 2

When market price moves below the equilibrium price, quantity demanded increases and quantity supplied decreases.

This leads to excess of quantity demanded over quantity supplied.

Thus,

If the government sets the legal price of a product below the market equilibrium price then quantity demanded is greater than the quantity supplied.

Hence, the correct answer is the option (D).

Question 3

Price ceiling leads to excess of quantity demanded over quantity supplied and therefore creates shortage.

Price floor leads to excess of quantity supplied over quantity demanded and therefore creates surplus.

So, Price floor create surpluses.

Hence, the correct answer is the option (C).

Question 4

Surplus is created in case of binding price floor.

So,

A government will create a surplus of a product when it sets a price floor for the product above the current equilibrium price.

Hence, the correct answer is the option (B).