Question

36) When the government institutes a price floor, this action will create a bilateral monopoly surplus in the market Osh equilibrium in the market

Answer 1

When the government institutes a price floor , this action will create a surplus in the market ( option b)

Justification: As you know, a price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low.For a price floor to be effective, it must be set above the equilibrium price. If it's not above equilibrium, then the market won't sell below equilibrium and the price floor will be irrelevant.

Now, the price floor will raise the price above what it was at equilibrium, so the demanders aren't willing to buy as much quantity. The demanders will purchase the quantity where the quantity demanded is equal to the price floor, or where the demand curve intersects the price floor line. On the other hand, since the price is higher than what it would be at equilibrium, the suppliers are willing to supply more than the equilibrium quantity. They will supply where their marginal cost is equal to the price floor, or where the supply curve intersects the price floor line.

So, now what happens is there is less quantity demanded (consumed) than quantity supplied (produced). This creates surplus in the market .