Read this article to learn about the top ten frequently asked questions on Simple Applications of Tools of Demand and Supply.

Q.1. How is equilibrium price determined in a freely functioning market?

Ans. It is left to the market forces of supply and demand.

Q.2. What roles does government have with regard to prices in Welfare state?


Ans. Government does exercise its authority, if need be, to regulate prices m case of welfare state.

Q.3. What is price ceiling?

Ans. It refers to the maximum price fixed by government to keep market price at a level lower than that of equilibrium price.

Q.4. Give any two examples of items covered by price ceiling?


Ans. Wheat, Life saving drugs.

Q.5. Is there any negative impact of price control, if yes, name it?

Ans. Yes, it encourages black marketing.

Q.6. What is Price Floor?


Ans. Price Floor means Minimum Support Price fixed by government.

Q. 7. Why does government fix Floor Price?

Ans. Government fixes Floor Price to ensure that market price remains above equilibrium price to protect the interest of the sellers.

Q.8. What does FAD stand for?

Ans. FAD stands for Food Availability Decline.

Q.9. Who has given the theory of FAD?

Ans. Prof. Amartya Sen has given the theory of FAD.

Q.10. What is the condition of Profit maximization?

Ans. The condition of Profit Maximization is


Gains earned through Labour = Cost of Labour.