Suppose the government sets a price floor of $4.85 per bushel of wheat when the equilibrium price is $4.55 per bushel. This price floor will:
A)cause a surplus of wheat.
B)cause a shortage of wheat.
C)have no immediate effect on the price of wheat.
D)increase the supply of wheat.

Question

Quizplus · Accepted Answer

A price floor above the equilibrium price creates a surplus, as the quantity supplied exceeds the quantity demanded at that higher price. Therefore, a price floor of $4.85 per bushel of wheat will cause a surplus of wheat.

Suppose the Government Sets a Price Floor of $4