Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A government sets a minimum price for potatoes, leading to an increase in supply and a surplus.
B
A government removes a price cap on wheat, leading to decreased supply and higher prices.
C
A government subsidizes potato production, resulting in higher consumer prices and reduced demand.
D
A government imposes a tax on potato sales, which decreases the overall market 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 good or service, and it can lead to some important effects in a competitive market. For example, if the government sets a price floor for milk at $3 per gallon, this means that milk cannot be sold for less than this price. If the market price is usually $2 per gallon, the higher price could lead to farmers producing more milk because they can sell it for more money. However, consumers might buy less milk at the higher price, which can create a surplus where there is more milk available than people want to buy. This situation shows how a price floor can disrupt the balance between supply and demand in the market.
Detailed Explanation
A price floor is a minimum price set by the government. Other options are incorrect because This option confuses price caps with price floors; This option mixes up subsidies with price floors.
Key Concepts
Price Floors
Surplus Supply
Government Intervention
Topic
Price Floors in Competitive Markets
Difficulty
easy level question
Cognitive Level
understand
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