CA Foundation P4 · Chapter 7 · Question 8 of 15
Market demand is Qd = 500 - 10P and supply is Qs = 100 + 10P. If the government imposes a price ceiling of Rs. 15, the market will experience:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) A shortage of 100 units
Explanation
Equilibrium: 500 - 10P = 100 + 10P, so P = 20 and Q = 300. The ceiling of Rs. 15 is below equilibrium and therefore binding. At P = 15, Qd = 500 - 150 = 350 and Qs = 100 + 150 = 250. Shortage = 350 - 250 = 100 units.
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