Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A minimum price set by the government for a good or service
B
A maximum price set by the government for a good or service
C
A price determined by supply and demand
D
A price that does not change regardless of market conditions
Understanding the Answer
Let's break down why this is correct
Answer
A price floor in economics is a minimum price set by the government for a good or service, meaning sellers cannot sell it for less than this price. The main reason for setting a price floor is to ensure that producers earn enough money to cover their costs and continue making the product. For example, if the government sets a price floor for milk at $2 per gallon, farmers cannot sell milk for less than this amount. This can help protect farmers from prices that are too low, but it can also lead to excess supply if consumers are not willing to buy milk at that higher price. So, while price floors can help some businesses, they can also create challenges in the market.
Detailed Explanation
A price floor is the lowest price that can be charged for a good or service. Other options are incorrect because This answer confuses a price floor with a price ceiling; This option suggests prices are only set by supply and demand.
Key Concepts
price floor definition
Topic
Understanding Price Floors
Difficulty
easy level question
Cognitive Level
understand
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