Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
They increase the quantity supplied without affecting the market price.
B
They lead to a surplus of the product.
C
They have no impact on the market since the price remains below the floor.
D
They decrease the quantity demanded significantly.
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive market, a non-binding price floor is a minimum price set by the government that is lower than the current market price. This means that the price floor does not actually affect the market because the price is already higher than the floor. For agricultural products with inelastic demand, consumers will still buy almost the same amount regardless of small price changes. For example, if the price of rice is set at $2 per pound but the price floor is $1. 50, the price floor does not change anything because rice is still sold at $2.
Detailed Explanation
A non-binding price floor is set below the market price. Other options are incorrect because Some might think a price floor raises supply; People may believe a price floor causes a surplus.
Key Concepts
Agricultural price supports
Elasticity of demand
Non-binding price floors
Topic
Price Floors in Competitive Markets
Difficulty
hard level question
Cognitive Level
understand
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