Which of the following statements is true if the government places a price ceiling on petrol at Rs150 per litre and the equilibrium price is Rs100 per litre ?
Correct answer: A. A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.
- A. A significant increase in the demand for petrol could cause the price ceiling to become a binding constraint.
- B. A significant increase in the supply for petrol could cause the price ceiling to become a binding constraint.
- C. There will be a shortage of petrol
- D. There will be surplus of petrol
Explanation
At Rs150, the ceiling is above the Rs100 equilibrium price, so it is initially nonbinding. A substantial increase in demand can raise the equilibrium price above Rs150, making the ceiling binding.
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