Suppose the equilibrium price of a litre of milk is $4. If the government imposes a price floor of $5 per litre of milk, the
A) quantity supplied of milk exceeds the quantity demanded.
B) price of milk remains $4 per litre.
C) supply increases.
D) demand decreases.
E) quantity supplied of milk falls short of the quantity demanded.

Question

Quizplus · Accepted Answer

A price floor set above the equilibrium price ($5 instead of $4) leads to a surplus where the quantity supplied exceeds the quantity demanded because producers are willing to supply more at the higher price, but consumers are not willing to buy as much.

Suppose the Equilibrium Price of a Litre of Milk Is