Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A surplus of wheat will develop as farmers produce more than consumers are willing to buy.
B
The price of wheat will decrease to meet consumer demand.
C
Farmers will reduce their production of wheat due to lower prices.
D
The quantity of wheat demanded will increase as prices rise.
Understanding the Answer
Let's break down why this is correct
Answer
When a government sets a price floor on wheat, it means they establish a minimum price that must be paid for wheat, which is often above the market equilibrium price. This can lead to a situation where the price of wheat is higher than what many buyers are willing to pay, resulting in excess supply. For example, if the price floor is set at $5 per bushel, farmers may produce more wheat because they are guaranteed a higher price, but consumers might only want to buy wheat at $4 per bushel. As a result, there will be a surplus of wheat, with more being produced than is sold. This situation can lead to wasted resources and potential financial strain on farmers if they cannot sell all their wheat.
Detailed Explanation
A price floor means the government sets a minimum price for wheat. Other options are incorrect because Some might think that prices will drop to match what people want to pay; It's a common belief that lower prices make farmers produce less.
Key Concepts
Price Floor
Market Surplus
Government Intervention
Topic
Understanding Price Floors
Difficulty
easy level question
Cognitive Level
understand
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