Which of the following problems may be created by price ceiling on wheat accompanied by rationing of the goods?
i. Shortage of wheat
ii. Creation of black market
iii. Hassle of long queues
iv. Excess supply of wheat
Alternatives:
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: i, ii, iii
A price ceiling is a government-imposed maximum price that can be charged for a good. If the ceiling is set below the market equilibrium price, it can create several problems:
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Shortage of wheat (i) – True
- Since the price is artificially lowered, demand increases while supply decreases, leading to a shortage.
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Creation of black market (ii) – True
- Due to the shortage, some sellers may illegally sell wheat at higher prices, leading to the rise of a black market.
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Hassle of long queues (iii) – True
- Since demand exceeds supply, people will have to stand in long queues to get limited quantities of wheat.
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Excess supply of wheat (iv) – False
- A price ceiling reduces supply, so excess supply does not occur. Instead, a shortage happens.