In the market for cotton,suppose the equilibrium price is $10 per ton and the equilibrium quantity is 100 tons.If the government then imposes a price support of $20 per ton,
A) the market price increases.
B) the market price decreases.
C) marginal cost decreases.
D) consumer surplus increases.
E) the deadweight loss is decreased.

Question

Quizplus · Accepted Answer

When the government imposes a price support of $20 per ton, it creates a price floor. Since the equilibrium price is $10 per ton, the price floor is above the market price. This means that the price support is higher than the market price, and so the market price increases to meet the price floor. Therefore, choice A is correct. The market price increases. None of the other choices are true.

In the Market for Cotton,suppose the Equilibrium Price Is $10