What happens when a minimum price is imposed in a market?

A. Shortage occurs
B. Surplus occurs
C. market maintains its equilibrium
D. Many firms will close down

Correct Answer:

Option B = Surplus occurs

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.