The correct answer is Option (4) → (D), (C), (B), (A)
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(D) Market equilibrium occurs by the intersection of demand and supply curves: This is the initial state in a free market. Before any intervention, the price and quantity of a good are determined by the natural forces of demand and supply, where the quantity demanded equals the quantity supplied.
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(C) Government sets a minimum price: This is the direct action of imposing a Minimum Support Price. The government sets a floor price (MSP) for certain agricultural products, which is typically above the market equilibrium price. This is done to protect farmers from price fluctuations and ensure a minimum income.
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(B) Situation of Surplus occurs due to imposition of floor price: Because the MSP is set above the equilibrium price, at this higher price, producers are willing to supply more than consumers are willing to buy. This creates an excess supply, leading to a surplus (or glut) in the market. Demand contracts due to the higher price, while supply expands.
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(A) Government buys the surplus at the predetermined price: To make the MSP effective and prevent prices from falling back to equilibrium (which would defeat the purpose of the MSP), the government intervenes and purchases the surplus quantity from the farmers at the predetermined minimum support price. This ensures that farmers receive the guaranteed price for their produce.
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