Question

Question 44 (1 point) Figure 6-3 Price $8.00 - 7.00 6.00 30 40 50 60 70 Quantity Refer to Figure 6-3. If the government imposes a binding price floor in this market at a price of $7.00, what is the result? a shortage of 10 units a shortage of 20 units O a surplus of 10 units O a surplus of 20 units

Answer 1

As per the figure 6-3,If the government imposes a binding price floor in this market at a price of $7.00.The result is :

• 'a surplus of 20 units'.

At a price of $7,it can be clearly seen in the above graph that at this level the market supply of the good is 60 units and the market demand of the same good is 40 units.Here the quantity supplied is greater than the quantity demanded at this price,which is a situation of excess supply in the market leading to a surplus of 20 units i.e.40 units less than 60 units.

Here,the first and the second option is incorrect because it is a situation of excess supply,so there cannot be a shortage in any condition.And the surplus is of 20 units,not 10 units as surplus can be calculated by subtracting 40 units from 60 units.

It should be noted that this is a situation of price floor and it is always used by the government to fix a price above the equilibrium level.This can be used to ensure fair prices of agricultural products to the farmers.