Figure 6-5
-Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the horizontal line on the graph. If the price control is a price floor, then the price control

Question

Figure 6-5 
-Refer to Figure 6-5. Suppose the market is initially in equilibrium. Then the government imposes a price control, as represented by the horizontal line on the graph. If the price control is a price floor, then the price control

Quizplus · Accepted Answer

A price floor creates a situation where the price cannot fall below a certain level set by the government. In this case, the floor is above the initial equilibrium price. This will cause a surplus of goods, with quantity supplied exceeding quantity demanded. According to the graph, the quantity demanded will decrease by 50 units (point A to point C) and the quantity supplied will increase by 40 units (point B to point C) relative to the initial equilibrium. This surplus will result in some firms being more successful than others in selling their goods, as they may have the resources to hold on to their excess supply while other firms may be forced to sell at the lower equilibrium price. Therefore, all of the above options are correct.

Figure 6-5 -Refer to Figure 6-5. Suppose the Market Is Initially in Is