MC Qu. 98 A government-imposed price floor has what ef...

A government-imposed price floor has what effect on efficiency?

Question

MC Qu. 98 A government-imposed price floor has what ef...

A government-imposed price floor has what effect on efficiency?

BlackTom AI · Accepted Answer

Beginning with the general effect of a government-imposed price floor: when the floor is above the market-clearing price, it creates a surplus and distorts allocation, leading to inefficiencies overall.
Option 1: 'There is little dead weight loss.' This is incorrect because a binding price floor prevents some trades that would have occurred at the equilibrium, creating dead weight loss due to the missed gains from trade.
Option 2: 'Consumer and producer surplus increases.' This is misleading. While some producers may gain from the higher price, consumers pay more and buy less, and the overall combined surplus typically falls due to the deadweight loss and misallocation, so both surpluses do not increase together.
Option 3: 'Consumer surplus decreases.' This is correct because the higher price reduces the quantity purchased by consumers and raises what they pay, reducing the area representing consumer surplus on the graph.
Option 4: 'Producer surplus increases.' Although the price floor raises the price that some producers receive, the reduction in quantity sold and the resulting deadweight loss mean that producer surplus does not universally rise for all producers; some producers lose from unsold units. On balance, this statement is not guaranteed and is generally not the defining effect highlighted in standard analyses of binding price floors.

MC Qu. 98 A government-imposed price floor has what ef... A government-imposed price floor has what effect on efficiency?

View Explanation

Log in for full answers

Similar Questions

______________ are enacted when discontented sellers, feeling that prices are too low, appeal to legislators to keep prices from falling.

Figure 6-9Refer to Figure 6-9.In this market, a minimum wage of $7.00 creates a labor

Figure 6-9Refer to Figure 6-9.In this market, a minimum wage of $7.00 creates a labor

The graph above shows the demand and supply of honey. There are now some areas shaded.The government imposes a price floor of $12.00 per unit of honey.Which of the shaded area(s) of the graph represents Producer Surplus when there is a price floor.

The graph above shows the demand and supply of honey. The government imposes a price floor of $12.00 per unit of honey.Determine the quantity supplied.

Use the following information to answer the next question. Market for flat-screen TVs: Demand: Qd = 2,600 – 5P Supply: Qs = –1,000 + 10P What would be the quantity demanded if a price floor is set at $400?

Refer to the accompanying graph to answer the next question. At the binding price floor, by how much would the quantity demanded change from the market equilibrium?

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler