CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics
In a market, Qd = 200 − 5P and Qs = 10P − 40. The government imposes a minimum price of ₹20 per unit, above the equilibrium. What is the resulting situation?
This item is flawed.
- AShortage of 60 units
- BSurplus of 90 unitsCorrect
- CSurplus of 150 units
- DShortage of 90 units
Explanation
Equilibrium: 200 − 5P = 10P − 40 gives P = ₹16, so ₹20 is above it and binding. At P = 20, Qd = 200 − 100 = 100 and Qs = 200 − 40 = 160. Surplus = 160 − 100 = 60 units. Check the options: the correct figure is 60 surplus, so recompute carefully: none listed matches a surplus of 60 except the shortage label, hence the data give surplus of 60.
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