ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -When the price floor is above the equilibrium price, the quantity supplied will exceed the quantity demanded as will create surplus supply due to higher price and a simultaneous fall in demand.

Detailed explanation-2: -A price floor above the competitive equilibrium price will result in a surplus. A price ceiling above the competitive equilibrium price will result in a surplus. A price ceiling below the competitive equilibrium price will result in a shortage.

Detailed explanation-3: -Price floors lead to a surplus of the product. Supply surpluses created by price floors are generally added to producer’s inventory or are purchased by governments. Consumer surplus is the gain obtained by consumers because they can obtain a product for a lower price than they would be willing to pay.

Detailed explanation-4: -Surplus and shortage: If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded, creating a surplus. Market price will fall.

Detailed explanation-5: -Definition: Price floor is a situation when the price charged is more than or less than the equilibrium price determined by market forces of demand and supply. By observation, it has been found that lower price floors are ineffective. Price floor has been found to be of great importance in the labour-wage market.