Question

the wholesale market equilibrium price is rs. 25 per kg for rice and the quantity sold in the market is 70 tonnes. which of the following policies would create an excess supply of rice?
a. a price ceiling of rs .20 per kg
b. a price floor of rs. 20 per kg
c. a price ceiling of rs. 30 per kg
d. a price floor of rs. 30 per kg

Answer 1

Answer:

I think the answer is b a price floor of rs. 20 per kg

Answer 2

The correct option is d a price floor of rs. 30 per kg.

• A price ceiling is a maximum price that can be charged for a good or service, while a price floor is the minimum price that must be charged.
• To create an excess supply of rice, the policy would need to decrease the equilibrium price of Rs. 25 per kg.

• a. A price ceiling of Rs. 20 per kg would set a maximum price below the equilibrium price, which would create excess demand rather than excess supply.
• Therefore, this policy would not create an excess supply of rice.

• b. A price floor of Rs. 20 per kg would set a minimum price that is below the equilibrium price, and hence, it would not affect the market.
• Therefore, this policy would also not create an excess supply of rice.

• c. A price ceiling of Rs. 30 per kg would set a maximum price above the equilibrium price, which would not have any effect on the market as the equilibrium price is lower.
• Therefore, this policy would also not create an excess supply of rice.

• d. A price floor of Rs. 30 per kg would set a minimum price above the equilibrium price, which would create an excess supply of rice.
• Since the price is higher than the equilibrium price, suppliers would be willing to supply more rice, but consumers would be willing to buy less rice.
• As a result, there would be a surplus of rice in the market, leading to excess supply.

Therefore, the correct answer is (d) a price floor of Rs. 30 per kg.