Question

Suppose the government has imposed a price floor on the market for soybeans. Which of the following events could transform the price floor from one that is not binding into one that is binding? a. Farmers use improved, draught-resistant seeds, which lowers the cost of growing soybeans. b. The number of farmers selling soybeans decreases. c. Consumers' income increases, and soybeans are a normal good. d. The number of consumers buying soybeans increases.

Answer 1

Answer
Option a

A price floor is a minimum price a producer can charge and it is binding if the price is above the equilibrium price, from the question given price is not binding so the decrease in the price converts the non-binding to binding
To increase the price above the equilibrium price should :
The price can reduce if demand decreases or supply increases

As the first option increases supply so it can transform the price as the input cost decreasing and technology increasing
The second option decreases supply and increases price so it can not make it binding
The increase in consumer income increases demand and price.
The number of the buyer increases so the demand increases and price increases

Option a is correct as it increases supply and decreases the price.