In the graph, the government sets a price ceiling of ₹4. What is the result? Demand D (Qd = 100 − 10P) and supply S (Qs = 10P − 20) with equilibrium at ₹6. A price ceiling is set at ₹4: there, quantity supplied is 20 and quantity demanded is 60.

In the graph, the government sets a price…

In the graph, the government sets a price ceiling of ₹4.

Question 39

MediumOriginal question

In the graph, the government sets a price ceiling of ₹4. What is the result?

Demand D (Qd = 100 − 10P) and supply S (Qs = 10P − 20) with equilibrium at ₹6. A price ceiling is set at ₹4: there, quantity supplied is 20 and quantity demanded is 60.

A surplus of 40 unitsCorrect answerYour answerNo effect, because ₹4 is below equilibriumCorrect answerYour answerA shortage of 40 units: 60 demanded, 20 suppliedCorrect answerYour answerA shortage of 20 unitsCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer C

Correct answer: C

At ₹4: Qd = 100 − 40 = 60; Qs = 40 − 20 = 20.
Excess demand = 60 − 20 = 40 units, which the price is not allowed to clear.

Concept: Shortage under a ceiling
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsPrice ceiling and price floor

Practise this chapter →

Ten questions from Market Equilibrium & Price Controls, at your own pace.

Practise this chapter →

Ten questions from Market Equilibrium & Price Controls, at your own pace.

In the graph, the government sets a price ceiling of ₹4.

Question 39

Explanation