-Refer to Exhibit 4-11.Suppose that the government imposes a price floor in the market for good ABC at a price of $7.How many fewer units would be bought and sold at the price floor compared to the number of units that would be bought and sold in a free market?
A) 20
B) 30
C) 40
D) 60
E) 80

Question

-Refer to Exhibit 4-11.Suppose that the government imposes a price floor in the market for good ABC at a price of $7.How many fewer units would be bought and sold at the price floor compared to the number of units that would be bought and sold in a free market?
A) 20 
B) 30 
C) 40 
D) 60 
E) 80

Quizplus · Accepted Answer

A price floor set above the equilibrium price (which is the case here with a price floor of $7) leads to a surplus in the market because the quantity supplied exceeds the quantity demanded at that price. The difference between the quantity supplied and the quantity demanded at the price floor represents the reduction in the number of units bought and sold compared to the free market equilibrium.