Learning Path
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A
True
B
False
Understanding the Answer
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Answer
In a perfectly competitive market for potatoes, a price floor set above the equilibrium price means that sellers cannot sell potatoes for less than this minimum price. While it might seem that stable pricing benefits consumers, this actually leads to higher prices than they are willing to pay. As a result, some consumers will buy fewer potatoes or stop buying them altogether, which reduces consumer surplus. For example, if the equilibrium price of potatoes is $1 per pound and the price floor is set at $1. 50, consumers who were happy buying at $1 may now only buy a smaller amount at $1.
Detailed Explanation
A price floor above the equilibrium price can actually reduce consumer surplus. Other options are incorrect because Some might think that higher prices mean better stability for consumers.
Key Concepts
Market Equilibrium
Price Floors
Consumer Surplus
Topic
Long Response Questions in AP Economics
Difficulty
hard level question
Cognitive Level
understand
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