CIMA BA1 · Chapter 5 · Question 7 of 10
A guaranteed minimum price for an agricultural product is set above the equilibrium price. Which of the following is the most likely outcome?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) Excess supply, which the government may have to buy and store
Explanation
A minimum price above equilibrium raises quantity supplied and reduces quantity demanded, so a surplus arises. To maintain the price, the authorities typically buy up the surplus, which can be costly.
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