In the graph, the government sets a price floor of ₹8. What is the result? Demand D (Qd = 100 − 10P) and supply S (Qs = 10P − 20) with equilibrium at ₹6. A price floor is set at ₹8: there, quantity demanded is 20 and quantity supplied is 60.

In the graph, the government sets a price…

In the graph, the government sets a price floor of ₹8.

Question 41

MediumOriginal question

In the graph, the government sets a price floor of ₹8. What is the result?

Demand D (Qd = 100 − 10P) and supply S (Qs = 10P − 20) with equilibrium at ₹6. A price floor is set at ₹8: there, quantity demanded is 20 and quantity supplied is 60.

A shortage of 40 unitsCorrect answerYour answerNo effect, because ₹8 is above equilibriumCorrect answerYour answerA surplus of 60 unitsCorrect answerYour answerA surplus of 40 units: 60 supplied, 20 demandedCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

At ₹8: Qd = 100 − 80 = 20; Qs = 80 − 20 = 60.
Excess supply = 60 − 20 = 40 units, which the government usually has to buy and store.

Concept: Surplus under a floor
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 floor of ₹8.

Question 41

Explanation