Assignment-4 (Price Ceiling & Price Flooring): COC 102-1

1) Maximum legislation of price is known as:

a. Price flooring
b. Price ceiling
c. Price fixing
d. None
2) When price ceiling is above equilibrium, which one is correct?
a. There is excess demand over supply.
b. Market faces black marketing.
c. There is automatic adjustment in market.
d. Producers are in problem.
3) Minimum price legislation in agriculture above of equilibrium price
results in:
a. Good incentive to producers
b. Consumers will purchase more commodities.
c. Government must stock foodgrains in FCI.
d. Both b & c
4) What is the effect of Price ceiling on the quantity demanded & quantity
supplied of product? Why exactly Price Ceiling does cause in shortage?
5) Does a price ceiling change the equilibrium price?
6) What would be the impact of imposing a price floor below the equilibrium
price?
7) A low-income country decides to set a price ceiling on bread so it can make
sure that bread is affordable to the poor. The conditions of demand & supply
are given in following table. What is the equilibrium price & equilibrium
quantity before price ceiling?
A. What will the shortage be if equilibrium price is set respectively
at $ 2.40, $ 2.00 & $ 1.60?
B. What will the surplus be if equilibrium price is $3.20, $3.40 &
$4.00?
Price in $ Quantity Demand Quantity supplied
1.60 9000 5000
2.00 8500 5500
2.40 8000 6400
2.80 7500 7500
3.20 7000 9000
3.40 6500 11,000
4.00 6000 15000
 8) a) Explain the concept of “Black marketing” as a consequences of price

ceiling.

b) State the concept of “Buffer stock” as a tool of price floor.

9) Market for essential item of consumption is in stable condition, but

government finds that this market clearing price is too high to general

consumer. What will government do to bring down the price? Explain the

chain of effects due to this.

10) Agricultural price supports results in government holding large inventories.

Why do you think that government cannot simply give the product away to

people living in poverty?

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