Read the passage carefully and answer the questions based on the passage:

FLOOR PRICES

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. Through an agricultural price support programme, the government imposes a lower limit on the purchase price for some of the agricultural goods. Similarly, through the minimum wage legislation, the government ensures that the wage rate of the labourers does not fall below a particular level.

Imposition of price floors usually lead to following ____.

Excess supply.

The correct answer is Option (2) → Excess supply

A price floor is a minimum price fixed above the equilibrium price by the government.

• The price floor is generally set higher than the equilibrium price, and in such a situation producers are willing to supply more, but consumers are willing to buy less at that higher price.

• This leads to a situation of surplus, also called excess supply, because the quantity supplied exceeds the quantity demanded.