Figure 4-17
-Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,
A) buyers' total expenditure on the good decreases by $20.00.
B) the supply curve will shift to the left so as to now pass through the point (Q = 40, P = $7.00).
C) the quantity of the good demanded decreases by 20 units.
D) the price of the good continues to serve as the rationing mechanism.

Question

Figure 4-17 
-Refer to Figure 4-17. Suppose a price floor of $7.00 is imposed. As a result,
A) buyers' total expenditure on the good decreases by $20.00. 
B) the supply curve will shift to the left so as to now pass through the point (Q = 40, P = $7.00). 
C) the quantity of the good demanded decreases by 20 units. 
D) the price of the good continues to serve as the rationing mechanism.

Quizplus · Accepted Answer

The price floor of $7.00 is above the equilibrium price of $6.00. At the price floor, the quantity supplied is 60 units and the quantity demanded is 20 units. Buyers' total expenditure on the good is equal to the price times the quantity demanded, which is $7.00 x 20 units = $140.00. At the equilibrium price, buyers' total expenditure on the good is equal to $6.00 x 40 units = $240.00. Therefore, buyers' total expenditure on the good decreases by $20.00 when the price floor is imposed.

Figure 4-17 -Refer to Figure 4-17. Suppose a Price Floor of $7.00