Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Surplus of goods
B
Shortage of goods
C
No change in the market
D
Increase in demand
Understanding the Answer
Let's break down why this is correct
Answer
When a price floor is set above the market equilibrium price, it means that the minimum price for a good or service is higher than what buyers and sellers would normally agree on in a free market. This can lead to a surplus, which is when there are more goods available than people want to buy at that higher price. For example, if the equilibrium price for apples is $1 per pound but a price floor is set at $1. 50, farmers will want to produce more apples because they can sell them for more money, but consumers may buy fewer apples because they are now too expensive. As a result, you might see a lot of unsold apples piling up, creating waste and financial issues for farmers.
Detailed Explanation
When a price floor is set above the market price, sellers want to sell more at the higher price. Other options are incorrect because Some might think a price floor means less supply; It's easy to think that a price floor won't affect anything.
Key Concepts
Market equilibrium
Topic
Price Floors in Competitive Markets
Difficulty
easy level question
Cognitive Level
understand
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