Praxis II Citizenship

Category - Economics

Price floors generally lead to what in the market?
  1. A new equilibrium price for the good.
  2. Shortage of the good in the marketplace.
  3. Surplus of the good in the marketplace.
  4. Increased demand for the good.
Explanation
Answer: C - Price floors generally lead to a surplus of the good in the marketplace. The only way to affect an economic outcome with a price floor is to establish it at a price point that is above the product’s equilibrium price. They are established to benefit sellers. By keeping prices higher than the equilibrium price, the sellers are earning more than they’re spending even though demand is decreasing for the good. The increase in revenue causes them to keep making the good.
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