Identify the incorrect statement regarding price flooring:

It causes excess demand, which often leads to the problem of black marketing.

The correct answer is Option (1) → It causes excess demand, which often leads to the problem of black marketing.

This statement is incorrect because:

• Price flooring is a minimum price set above the equilibrium price.

• It leads to excess supply, not excess demand, because producers are willing to supply more at the higher price, but consumers demand less.

• This excess supply often results in surplus stock, not black marketing.

• Black marketing is associated with price ceilings, not price floors.

Other Options:

Option (2): Price floor is the minimum price of a commodity in the market as fixed by the government. Correct. A price floor is defined as the minimum price set by the government below which the price cannot fall.

Option (3): Often, the government fixes this price higher than the equilibrium market price of a commodity. Correct. For a price floor to be effective, it must be set above the equilibrium price; otherwise, it will have no impact on the market.

Option (4): It ensures stability of income to the producers. Correct. By preventing prices from falling too low, a price floor helps producers receive a stable and often higher income.