The correct answer is option 1: i, iv
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Price Floor → Excess Supply ✅ (Statement i is correct)
- A price floor is a minimum price set above the equilibrium price (e.g., Minimum Support Price for farmers).
- This leads to excess supply because producers want to sell more at the higher price, but consumers demand less.
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Price Ceiling → Excess Demand ✅ (Statement iv is correct)
- A price ceiling is a maximum price set below the equilibrium price (e.g., rent control, subsidized goods).
- This leads to excess demand because consumers want to buy more at the lower price, but producers supply less.
Incorrect statements:
- Statement ii ("Problem of price ceiling - Excess supply") ❌ Incorrect, because price ceilings cause shortages (excess demand), not excess supply.
- Statement iii ("Problem of price floor - Excess demand") ❌ Incorrect, because price floors lead to surpluses (excess supply), not excess demand.
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