Which of the following will tend to occur if price floors are imposed on a product?
A)Persistent surpluses
B)Problems of disposal of goods
C)Disguised discounts developing to eliminate excess production
D)Overinvestment in the industry
E)All of these responses are correct.

Question

Quizplus · Accepted Answer

Price floors, when set above the equilibrium price, lead to persistent surpluses because the quantity supplied exceeds the quantity demanded at that price. This surplus creates problems of disposal of goods, as producers struggle to sell their excess production. To mitigate these issues, producers may resort to disguised discounts or other means to eliminate excess production, effectively bypassing the price floor. Overinvestment in the industry can also occur as producers may anticipate higher returns due to the artificially high prices, leading to an inefficient allocation of resources.

Which of the Following Will Tend to Occur If Price