Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Increased consumer surplus
B
Reduced producer surplus
C
Allocation of resources to their most efficient use
D
Increased competition among producers
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, which means that sellers cannot sell below this price. One potential consequence of implementing a price floor is that it can lead to welfare loss, which happens when the total benefit to society decreases. For example, if the government sets a price floor on milk, it may be higher than the market price. This could lead to excess milk being produced that doesn't get sold, causing some dairy farmers to waste resources and consumers to pay more than they would normally. As a result, both producers and consumers are worse off, leading to a loss of overall economic efficiency.
Detailed Explanation
A price floor sets a minimum price. Other options are incorrect because Some might think a price floor helps consumers by lowering prices; It's a common mistake to think a price floor helps allocate resources efficiently.
Key Concepts
welfare loss
price controls.
Topic
Understanding Price Floors
Difficulty
medium level question
Cognitive Level
understand
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