Which of the following statement/statements are true?
Statement 1: One of the consequences of price ceiling is black marketing of the commodity.
Statement 2: Price ceiling is a price set below equilibrium level at which there is less supply and more demand, thereby leading to shortage of commodity in the market.
Answer & explanation
Correct answer: option 1
The correct answer is Option 1: Both the statements are true.
Statement 1: True
- Price ceiling is a government-imposed maximum price on essential goods, set below the equilibrium price to make the product affordable.
- Since the market price is forced to stay low, demand increases while supply decreases, leading to a shortage.
- This shortage creates an opportunity for black marketing, where sellers illegally sell the commodity at a higher price due to high demand.
Statement 2: True
- A price ceiling is always set below the equilibrium price, causing a market imbalance.
- At this artificially lower price:
- Quantity demanded exceeds quantity supplied, creating a shortage.
- Consumers want more of the product, but producers are not willing to supply enough due to lower profits.