The market demand and supply curves of a good are qD = 360 – 2p and qS = 60 + 3p, where p is the price in rupees. The government fixes a price ceiling of Rs 48. By how much does the quantity actually bought and sold fall short of the equilibrium quantity, and what is the excess demand at the ceiling?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → 36 units; 60 units
Given:
qD = 360 − 2p
qS = 60 + 3p
Price ceiling = Rs 48
First find the equilibrium by setting market demand equal to market supply.
\( 360 - 2p = 60 + 3p \)
\( 5p = 300 \)
\( p^* = 60 \)
\( q^* = 360 - 2 \times 60 = 240 \)
At the ceiling of Rs 48, find demand and supply.
\( q^D = 360 - 2 \times 48 = 264 \)
\( q^S = 60 + 3 \times 48 = 204 \)
Firms sell only what they supply, so 204 units are bought and sold.
\( 240 - 204 = 36 \)
\( 264 - 204 = 60 \)
The quantity sold falls short by 36 units, and the excess demand is 60 units.
NCERT (2026-27): “5.2.1 Price Ceiling … When the government imposes price ceiling at pc which is lower than the equilibrium price level, there will be an excess demand for wheat in the market at that price. The consumers demand qc kilograms of wheat whereas the firms supply q′c kilograms. Hence, though the intention of the government was to help the consumers, it could end up creating shortage of wheat. …” |