Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The quantity of rice supplied will exceed the quantity demanded, leading to a surplus.
B
The price of rice will drop to the equilibrium price due to market forces.
C
Consumers will buy more rice because it is now deemed affordable.
D
The government will reduce the price floor to correct imbalances.
Understanding the Answer
Let's break down why this is correct
Answer
When a government sets a price floor of $10 for rice, it means that sellers cannot sell rice for less than this price. This is intended to help local farmers by ensuring they earn a minimum income. However, if the market price for rice was already below $10, the price floor could lead to a surplus of rice. This happens because more farmers will want to sell rice at the higher price, but consumers might buy less rice since it's now more expensive. For example, if before the price floor, rice was selling for $8, consumers may buy less rice because they do not want to pay the higher price, leading to excess rice that doesn't sell.
Detailed Explanation
When the government sets a price floor, it means rice cannot be sold for less than $10. Other options are incorrect because Some might think the price will drop to what people usually pay; It's a common belief that lower prices make things more affordable.
Key Concepts
Price Floors
Market Surplus
Government Intervention
Topic
Price Floors in Competitive Markets
Difficulty
medium level question
Cognitive Level
understand
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