Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It creates a surplus of goods
B
It leads to a shortage of goods
C
It stabilizes prices
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's set above the equilibrium price, it can lead to a surplus in the market. The equilibrium price is where the supply of a product matches the demand for it. For example, if the equilibrium price of a loaf of bread is $2, but the government sets a price floor at $3, producers will want to make more bread because they can sell it for a higher price. However, consumers may not buy as much bread at the higher price, leading to an excess supply. This surplus means that there are more loaves of bread available than people want to buy, which can create waste and inefficiencies in the market.
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 price floors stabilize prices.
Key Concepts
price floor
Topic
Price Floors and Market Impact
Difficulty
easy level question
Cognitive Level
understand
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