Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
8th Edition
ISBN: 9781305585126
Author: N. Gregory Mankiw
Publisher: Cengage Learning
Question
Book Icon
Chapter 6, Problem 1CQQ
To determine

The impact of a binding price floor in the economy.

Expert Solution & Answer
Check Mark

Answer to Problem 1CQQ

Option ‘d’ is correct.

Explanation of Solution

The price floor is the minimum price that can be charged for the product in the market. This is to prevent the prices from going too low and creating a loss to the producers and service providers. The most common price floor is the minimum wages set by the government. The laborers should be paid minimum wages when their service is rendered.

Option (d):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. Thus, the price floor leads to the economic surplus in the economy. So, option ‘d’ is correct.

Option (a):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. This causes the movement up along the existing supply curve and there will be no shift in the supply curve. Thus, option ‘a’ is incorrect.

Option (b):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. Since the price is set by the government, the demand will remain the same and usually, the floor price will be set above the equilibrium price. It declines the demand and usually leads to a top-leftward shift in the demand curve. Thus, option ‘b’ is incorrect.

Option (c):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. This increased supply causes the economic surplus in the economy and not economic shortage. Thus, option ‘c’ is incorrect.

Economics Concept Introduction

Concept introduction:

Price floor: It is the minimum legal price set for a commodity or service by the government or the authority. This is to prevent the prices from going too low.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
________When there is a shortage of citrus fruit, the economic forces of supply and demand would suggest that a. price will stay constant. b. price will decrease. c. price will increase. d. price, all things remaining equal, will increase. e. it will take a long time before the shortage is felt in the market.
An increase in an effective price ceiling will do what in the relevant market? a. The surplus will increase.b. The surplus will decrease.c. The shortage will increase.d. The shortage will decrease.
In a competitive market, if the government imposes a price ceiling below the equilibrium price, what is likely to happen?A. Surplus of goods B. Shortage of goods C. No change in quantity exchangedD. Price remains the same
Knowledge Booster
Background pattern image
Similar questions
SEE MORE QUESTIONS
Recommended textbooks for you
Text book image
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:9780190931919
Author:NEWNAN
Publisher:Oxford University Press
Text book image
Principles of Economics (12th Edition)
Economics
ISBN:9780134078779
Author:Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:PEARSON
Text book image
Engineering Economy (17th Edition)
Economics
ISBN:9780134870069
Author:William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:PEARSON
Text book image
Principles of Economics (MindTap Course List)
Economics
ISBN:9781305585126
Author:N. Gregory Mankiw
Publisher:Cengage Learning
Text book image
Managerial Economics: A Problem Solving Approach
Economics
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Cengage Learning
Text book image
Managerial Economics & Business Strategy (Mcgraw-...
Economics
ISBN:9781259290619
Author:Michael Baye, Jeff Prince
Publisher:McGraw-Hill Education