How government intervention through price control policy will have an impact on the market?
(A) The government imposed lower limit on the price that may be charged
(B) For certain goods and services, a fall in price below a particular level is not desirable
(C) Thereby leading to an excess supply in the market
(D) Government needs to buy the surplus at the predetermined price
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (B), (A), (C), (D)
A government-imposed lower limit on a price is a price floor, as in agricultural price support programmes.
(B) For certain goods and services, a fall in price below a particular level is not desirable — This is the reason for the government to step in.
(A) The government imposed lower limit on the price that may be charged — This is the price floor itself, normally set higher than the market-determined price.
(C) Thereby leading to an excess supply in the market — At this higher price, sellers offer more than buyers want, so excess supply arises.
(D) Government needs to buy the surplus at the predetermined price — Excess supply would pull the price down, so the government buys the surplus to prevent this.
NCERT (2026-27): “5.2.2 Price Floor For certain goods and services, fall in price below a particular level is not desirable and hence the government sets floors or minimum prices for these goods and services. The government-imposed lower limit on the price that may be charged for a particular good or service is called price floor. Most well-known examples of imposition of price floor are agricultural price support programmes and the minimum wage legislation.… Figure 5.8 shows the market supply and the market demand curve for a commodity on which price floor is imposed. The market equilibrium here would occur at price p* and quantity q*. But when the government imposes a floor higher than the equilibrium price at pf, the market demand is qf whereas the firms want to supply q′f, thereby leading to an excess supply in the market equal to qfq′f. In the case of agricultural support, to prevent price from falling because of excess supply, government needs to buy the surplus at the predetermined price.”
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