Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to a surplus of goods.
B
It causes a shortage of goods.
C
It has no effect on the market.
D
It increases consumer demand.
Understanding the Answer
Let's break down why this is correct
Answer
A price floor is a minimum price set by the government for a good or service, and when it is set above the equilibrium price, it can create a surplus. The equilibrium price is where the supply of a product matches the demand for it. If the price floor is higher than this equilibrium price, sellers will want to supply more of the product because they can sell it for a higher price, but buyers will not want to purchase as much because it is too expensive. For example, if the equilibrium price of bread is $2, but the government sets a price floor at $3, bakers might make more bread, but fewer people will buy it, leading to unsold bread. This surplus can cause problems in the market, such as wasted resources or a decline in quality.
Detailed Explanation
A price floor is a minimum price set by the government. Other options are incorrect because Some might think a price floor causes a shortage; It's a common mistake to think a price floor has no effect.
Key Concepts
supply and demand
Topic
Price Floors and Market Impact
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.