Understanding Economic Concepts

Assertion (A): Price ceiling is generally imposed on essential items and is fixed below the market determined price. Reason (R): The reason is that equilibrium price is too high for the common people to afford.

• Price ceiling is set above the market price to encourage production.

• Both A and R are true, and R is the correct explanation for A.

• Equilibrium price is always affordable for everyone.

• Price ceilings are only applied to luxury items.

Assertion (A): Minimum wage legislation is an example of imposition of Price ceiling. Reason (R): Under Minimum Wage Legislation, minimum wages are set above the equilibrium wage level by the Government.

• Minimum wages are set below the equilibrium wage level.

• Minimum wage legislation is a type of price floor.

• Minimum wage legislation does not affect employment levels.

• Both Assertion (A) and Reason (R) are incorrect.

Assertion (A): When supply is perfectly elastic, then change in demand does not affect the equilibrium price. Reason (R): Perfectly elastic supply means that suppliers will provide any quantity at a given price.

• True

• Change in demand increases the equilibrium price.

• Perfectly elastic supply means suppliers will not change quantity at all.

• Equilibrium price is determined solely by demand regardless of supply.

Assertion (A): A subsidy increases the supply of a good. Reason (R): Subsidies lower the production cost for producers, encouraging them to produce more.

• A subsidy decreases the supply of a good.

• True

• Subsidies increase production costs for producers.

• A subsidy has no effect on the supply of a good.

Assertion (A): The law of demand states that as price increases, quantity demanded decreases. Reason (R): This is due to the substitution effect and income effect.

• The law of demand states that as price decreases, quantity demanded increases.

• Income effect refers to changes in consumer preferences unrelated to price.

• The substitution effect only applies to luxury goods.

• Both A and R are true, and R explains A.

Assertion (A): A price floor leads to a surplus in the market. Reason (R): Price floors are set above the equilibrium price, causing excess supply.

• Price floors are only applicable to non-essential goods.

• Both A and R are true, and R explains A.

• Price floors have no impact on market supply.

• Price floors are set below the equilibrium price.

Assertion (A): A decrease in consumer income leads to a decrease in demand for inferior goods. Reason (R): Inferior goods are those that consumers buy less of when their income rises.

• Inferior goods are unaffected by changes in consumer income.

• Both A and R are true, and R explains A.

• Inferior goods are always more expensive than normal goods.

• A decrease in consumer income increases demand for normal goods.

Assertion (A): The concept of elasticity measures how much quantity demanded responds to price changes. Reason (R): Elasticity is defined as the percentage change in quantity demanded divided by the percentage change in price.

• Elasticity is irrelevant in perfectly competitive markets.

• Elasticity measures the relationship between supply and demand.

• Both A and R are true, and R explains A.

• Elasticity only applies to luxury goods.

Assertion (A): A tax on goods leads to a decrease in supply. Reason (R): Taxes increase the cost of production for suppliers, which discourages them from producing as much.

• Taxes have no effect on supply.

• Both A and R are true, and R explains A.

• Taxes only affect demand, not supply.

• Supply increases when taxes are imposed.

Assertion (A): Price discrimination allows firms to charge different prices to different consumers. Reason (R): This practice is based on the consumers' willingness to pay.

• Price discrimination only applies to essential goods.

• Both A and R are true, and R explains A.

• Firms cannot profit from price discrimination.

• Price discrimination is illegal in all markets.