IGNOU BECM 161 2025 - If the government fixes the price above the equilibrium price, what im

Question

If the government fixes the price above the equilibrium price, what impact will it have on the market?

02 Mar 2026

Answer :

Word Count : 502

When the government fixes a price above the equilibrium price, it essentially sets a price floor, which is legally the minimum price that can be charged for a good or service. In the context of microeconomics, the equilibrium price is the point where quantity demanded equals quantity supplied. Any deviation from this equilibrium due to government intervention disrupts the natural balance of the market. When the price floor is set above the equilibrium, suppliers are willing to produce and sell more of the good because the higher price increases their potential revenue. The law of supply states that as price increases, quantity supplied increases. On the other hand, consumers face a higher price, which reduces the quantity they are willing and able to buy according to

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