Asked by Andrea Weitoschova on May 09, 2024
Verified
The harmful effect of a price floor to ________ is ________.
A) producers; the selling price of the product is below the equilibrium price
B) producers; the floor creates a surplus of the product
C) consumers; the selling price of the product is below the equilibrium price
D) consumers; the floor creates a shortage of the product
Price Floor
A government- or authority-imposed minimum price that can be charged for goods and services, typically above the equilibrium price, to prevent prices from falling too low.
Surplus
A situation where the quantity supplied of a product exceeds the quantity demanded at a specific price.
- Comprehend the principles of price ceilings and price floors, along with their impact on market equilibrium.
Verified Answer
SB
Sarthak BasnetMay 13, 2024
Final Answer :
B
Explanation :
A price floor, when set above the equilibrium price, leads to a surplus because it sets the minimum price at which a product can be sold, which is higher than what the market would naturally set. This results in producers not being able to sell all of their product, as the price is too high for consumers to purchase the entire supply, leading to a surplus.
Learning Objectives
- Comprehend the principles of price ceilings and price floors, along with their impact on market equilibrium.