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Market Equilibrium

Question

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What is minimum price ceiling? Explain its implications.

Solution

Minimum price ceiling means the least price that could be paid for a good or service. It is the price fixed by the government for a good in the market. The government fixes the price on agricultural products and food grains in particular so that the farmers get their fair price of a commodity which otherwise actually can be sold with too low of a price.
Effects of price floor:
(i) Minimum Return: Farmers are ensured with the minimum returns as their products are completely sold in the market at comparatively higher price. This leads to an increase in their level of income.
(ii) Maximum Level of output: The government ensures to buy the full produce of the farmers which are not sold in the market at the price floor. Hence, they are able to produce the maximum level of output.
(iii) Burden on Government: It also puts extra burden on the government revenues. It becomes mandatory for the government to purchase the excess produce, even if it runs a sufficient volume of buffer stocks.
(iv) Higher Taxes: The government also tries to shift the burden (associated with purchasing the excess produce at higher price) to the consumers and the traders in form of higher taxes.

Some More Questions From Market Equilibrium Chapter

Market for a good is in equilibrium. There is an 'increase' in demand for this good. Explain the chain of effects of this change. Use diagram.

What is minimum price ceiling? Explain its implications.

If the prevailing market price is above the equilibrium price, explain its chain of effects.

The demand of a commodity when measured through the expenditure approach is inelastic. A fall in its price will result in :
(choose the correct alternative)
(a) no change in expenditure on it.
(b) increase in expenditure on it.
(c) decrease in expenditure on it.
(d) any one of the above

As we move along a downward sloping straight line demand curve from left to right, price elasticity of demand : (choose the correct alternative)
(a) remains unchanged
(b) goes on falling
(c) goes on rising
(d) falls initially then rises

Define market demand.

Show that demand of a commodity is inversely related to its price.
Explain with the help of utility analysis.

Or

Why is an indifference curve negatively sloped? Explain.

When price of a commodity X falls by 10 per cent, its demand rises from 150 units to 180 units. Calculate its price elasticity of demand. How much should be the percentage fall in its price so that its demand rises from 150 to 210 units ?

Complete the following table :

output units total cost average variable cost marginal cost average fixed cost
0 30
1 20
2 68
3 84 18
4 18
5 125 19 6

Good Y is a substitute of good X. The price of Y falls. Explain the chain of effects of this change in the market of X.
Or
Explain the chain of effects of excess supply of a good on its equilibrium price.

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