Asked by Forest Dumont on Apr 27, 2024
Verified
Refer to Figure 4.3. If the government will not allow retailers to charge less than $0.50 for a pencil, which of the following will happen?
A) Demand must eventually increase so that the market will come into equilibrium at a price of $0.50.
B) Supply must eventually decrease so that the market will come into equilibrium at a price of $0.50.
C) Retailers will have an excess supply of pencils.
D) The market will be in equilibrium at a price of $0.50.
Excess Supply
A market condition where the quantity of a product offered for sale by producers exceeds the quantity demanded by consumers at a given price.
Price Floor
A government-imposed minimum price charged for a commodity, below which it cannot legally be sold, typically intended to protect producers.
Retailers
Businesses that sell goods directly to consumers.
- Investigate the impact resulting from excessive supply and demand in market environments.
- Understand the implications of market interventions for consumers and producers.
Verified Answer
HU
Hannah UlrichMay 02, 2024
Final Answer :
C
Explanation :
Setting a minimum price above the equilibrium price (price floor) leads to excess supply because the quantity supplied at this price is greater than the quantity demanded. This does not automatically adjust demand or supply to reach a new equilibrium at the imposed price level.
Learning Objectives
- Investigate the impact resulting from excessive supply and demand in market environments.
- Understand the implications of market interventions for consumers and producers.