Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Producers increase supply due to higher prices, but consumers buy less at those prices.
B
Consumers are unaware of the price floor and continue to demand the same quantity.
C
The government subsidizes potato production, causing a shift in demand.
D
The market becomes perfectly competitive, leading to optimal resource allocation.
Understanding the Answer
Let's break down why this is correct
Answer
A price floor is a minimum price set by the government, and when it is set above the market equilibrium price, it means that the price is higher than what buyers and sellers would naturally agree on. In the potato market, if the price floor is too high, producers will want to supply more potatoes because they can sell them for a better price. However, consumers may not want to buy as many potatoes at this higher price, leading to fewer purchases. This mismatch creates a surplus, where there are more potatoes available than people are willing to buy. For example, if the equilibrium price for potatoes is $1 per pound, but the price floor is set at $1.
Detailed Explanation
When the government sets a price floor above the market price, potatoes cost more. Other options are incorrect because This answer suggests that consumers don't know about the price floor; This option implies that government support changes how many potatoes people want.
Key Concepts
Price Floors
Market Equilibrium
Supply and Demand
Topic
Long Response Questions in AP Economics
Difficulty
hard level question
Cognitive Level
understand
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