Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A surplus of goods will occur
B
A shortage of goods will occur
C
The market will reach equilibrium
D
Prices will decrease
Understanding the Answer
Let's break down why this is correct
Answer
When the government sets a price floor above the equilibrium price, it means that the lowest price allowed for a product is higher than what buyers and sellers naturally agree on. This often leads to a surplus, which means there are more goods available than people want to buy at that higher price. For example, if the equilibrium price of bread is $2, but the government sets a price floor of $3, bakers will produce more bread since they can sell it for more, but fewer customers will buy it because it’s too expensive. As a result, there will be leftover bread that doesn’t get sold, causing waste and problems for the bakers. Overall, price floors can disrupt the balance of supply and demand in the market.
Detailed Explanation
When a price floor is set above the equilibrium price, sellers can't lower their prices. Other options are incorrect because Some might think a shortage happens when prices are high; It's a common mistake to think that price floors help reach equilibrium.
Key Concepts
supply and demand
Topic
Understanding Price Floors
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.