Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
It leads to a surplus of goods
B
It leads to a shortage of goods
C
It increases consumer demand
D
It decreases production costs
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 product or service, meaning sellers cannot sell it for less than this price. This can help producers by ensuring they receive a fair income, but it can also lead to problems in the market. For example, if the price floor for milk is set too high, farmers may produce more milk than consumers want to buy, leading to surplus. This surplus can cause waste or require the government to buy the excess milk, which can be costly. Overall, while a price floor aims to protect sellers, it can disrupt the balance of supply and demand in the market.
Detailed Explanation
A price floor sets a minimum price for a good. Other options are incorrect because Some might think a price floor causes a shortage; It's a common mistake to think higher prices increase demand.
Key Concepts
market distortion
Topic
Understanding Price Floors
Difficulty
easy level question
Cognitive Level
understand
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