A market consequence of a price floor program is that:
A) a shortage of the product will develop.
B) producers will stop supplying the product.
C) some rationing device must then be instituted.
D) a surplus of the product will develop.

Question

Quizplus · Accepted Answer

A price floor is a government-imposed minimum price that is set above the equilibrium price. This means that the price cannot fall below a certain level. At the higher price, producers are incentivized to supply more of the product, assuming demand remains constant. However, at this higher price, consumers are no longer willing to purchase as much of the product, leading to a surplus or excess supply. Therefore, choice D, "a surplus of the product will develop," is the correct answer.

A Market Consequence of a Price Floor Program Is That