Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A price floor can lead to a surplus if the minimum price is set above the equilibrium price.
B
Price floors guarantee that all producers will operate at maximum efficiency.
C
When a price floor is implemented, consumers may face higher prices and reduced access to goods.
D
Price floors can result in deadweight loss if they cause a disparity between the quantity produced and the socially efficient quantity.
E
A price floor can enhance competition among producers by ensuring a minimum price.
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 product or service, meaning sellers cannot sell below this price. When a price floor is established, it often leads to a surplus in the market because the higher price can reduce consumer demand while encouraging producers to supply more. For example, if the government sets a price floor on milk, and the price is higher than what many consumers are willing to pay, fewer people will buy milk, but farmers may produce more of it. This can result in unsold milk piling up, which is the surplus. Therefore, price floors can disrupt the natural balance of supply and demand, causing problems in the market.
Detailed Explanation
All the statements provided misunderstand how price floors work. Other options are incorrect because Some might think a higher minimum price always leads to more goods; It's a common mistake to think that a minimum price helps all producers work better.
Key Concepts
Price Floors
Market Equilibrium
Deadweight Loss
Topic
Price Floors and Market Impact
Difficulty
hard level question
Cognitive Level
understand
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