Suppose that a price floor is established and the government declares that it will purchase any excess supply.Which of the following statements best characterizes the loss of total economic surplus that results from this change?
A) Consumers are encouraged to consume too much.
B) The extra cost of the last unit produced is greater than the extra benefit of the last unit consumed.
C) Producers are encouraged to produce too little.
D) Firms will spend too little on political contributions to maintain the price floor.
E) The enforcement of the price floor is extremely costly.

Question

Quizplus · Accepted Answer

A price floor set above the equilibrium price leads to excess supply. The government purchasing this excess supply results in a loss of total economic surplus because the cost of producing the last unit exceeds the benefit derived from consuming it.

Suppose That a Price Floor Is Established and the Government