If the government sets a price floor of $7 per sack for potatoes, leading to a surplus of potatoes in the market, what is the underlying cause of this surplus?

A price floor is a minimum price set by the government, and in this case, it is set at $7 per sack for potatoes. When the price is set above the market equilibrium, which is the price where supply and demand meet, it can lead to a surplus. This happens because producers are encouraged to supply more potatoes at the higher price, but consumers may not be willing to buy as many at that price, leading to excess potatoes that are not sold. For example, if farmers can sell more sacks of potatoes at $7, they might produce 1,000 sacks, but if consumers only want to buy 800 sacks at that price, there will be a surplus of 200 sacks. Thus, the surplus occurs because the higher price reduces demand while increasing supply.