Question

Arrange the following statements in the correct chronological sequence regarding the impact of government intervention in the form of price control in the market: A. There will be excess demand for sugar at that price
B. Government imposes an upper limit on the price of sugar
C. Sugar is distributed to everyone through a system of rationing
D. This may lead to a shortage of sugar in the market

• A. A, B, C, D
• B. A, C, B, D
• C. B, A, D, C
• D. C, B, D, A

Hint:

Price ceiling below equilibrium causes: \[ \text{Excess demand} \rightarrow \text{Shortage} \rightarrow \text{Rationing} \]

Answer 1

The Correct Option is C

Step 1: Understanding the Concept:
A "Price Ceiling" or "Upper Limit" is a legal maximum price set by the government, usually below the equilibrium price, to protect consumers from high prices.
Step 2: Detailed Explanation:
The chronological sequence of the impact is as follows:
1. B. Government imposes an upper limit on the price of sugar: This is the starting intervention to make sugar affordable.
2. A. There will be excess demand for sugar at that price: At a price lower than equilibrium, the quantity demanded exceeds the quantity supplied (Law of Demand and Supply).
3. D. This may lead to a shortage of sugar in the market: Continuous excess demand without sufficient supply results in an actual market shortage.
4. C. Sugar is distributed to everyone through a system of rationing: To manage the shortage and ensure everyone gets a fair share, the government must introduce rationing (e.g., ration cards).
The correct sequence is B $\rightarrow$ A $\rightarrow$ D $\rightarrow$ C.
Step 3: Final Answer:
The logical outcome of a price ceiling follows the path: Intervention $\rightarrow$ Excess Demand $\rightarrow$ Shortage $\rightarrow$ Rationing.
Thus, option (C) is correct.