Question
Price floors tend to lead to... a) surpluses. b) slivers. c) shortages. d) elasticity of supply.
Ask by Phillips Gardner. in the United States
Feb 24,2025
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Answer
Price floors lead to surpluses.
Solution
The correct answer is a) surpluses.
Explanation: A price floor sets a minimum price above the equilibrium, which means that the quantity supplied exceeds the quantity demanded. This creates a surplus—often referred to as an excess supply—because sellers are willing to supply more than buyers are willing to purchase at that higher price.
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Price floors tend to lead to surpluses because when the government sets a minimum price for a good or service, it often exceeds the equilibrium price. Producers are encouraged to supply more of the good at this higher price, but consumers may not be willing to purchase as much, resulting in excess supply. This excess supply can cause problems in markets, particularly in agriculture, leading to wasted goods or the need for government intervention to purchase the surplus and stabilize prices. It’s a classic case of supply and demand dynamics in action!
