A price floor on corn would have the effect of
A) creating a surplus regardless of the level at which the price floor is set
B) creating a surplus supply when the floor is above the equilibrium price
C) creating a shortage when the price floor is set below the equilibrium price
D) creating a shortage regardless of where the price floor is set
E) ensuring a more equitable distribution of the good among consumers

Question

Quizplus · Accepted Answer

A price floor is a government intervention that sets a minimum price higher than the equilibrium price. When a price floor is set on corn, if it is above the equilibrium price, it will cause a surplus supply, because the quantity supplied will be higher than the quantity demanded. This will result in a buildup of unsold corn in the market, as producers are willing to supply more than consumers are willing to purchase. Therefore, B is the best choice.

A Price Floor on Corn Would Have the Effect of