Which of the following are administered prices?
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Both 1 and 2
- Administered prices are prices set or regulated by the government rather than determined by market forces.
- Price ceiling (maximum price) and price floor (minimum price) are both forms of government intervention in the market, making them administered prices.
Understanding the options:
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Price ceiling ✅ (Correct)
- A maximum price set below equilibrium (e.g., rent control, essential commodities).
- It prevents prices from rising too high and can lead to shortages.
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Price floor ✅ (Correct)
- A minimum price set above equilibrium (e.g., Minimum Support Price for farmers, minimum wage).
- It prevents prices from falling too low and can lead to surpluses.