What happens when a minimum price is imposed in a market?
- Shortage occurs
-
Surplus occurs
- market maintains its equilibrium
- Many firms will close down
The correct answer is: B
Explanation
A minimum price is when the government doesn't allow prices to go below a certain level. At this point, suppliers will be willing to supply more in the market because they are certain to sell above a particular price. This will lead to a surplus in the market.
The minimum price policy has been used in agriculture to increase farmers' income.