Refer to the accompanying figure.If the government has a budget of $300,000 to purchase surplus shampoo,what is the maximum possible floor price that could be imposed?

A) $1
B) $2
C) $3
D) $4
E) $5

Question

Refer to the accompanying figure.If the government has a budget of $300,000 to purchase surplus shampoo,what is the maximum possible floor price that could be imposed?

A) $1 
B) $2 
C) $3 
D) $4 
E) $5

Quizplus · Accepted Answer

The intersection of the demand and supply curves gives us the equilibrium price of $2 per bottle. However, if the government wants to impose a floor price, it needs to be higher than the equilibrium price. The maximum possible floor price would be where the demand curve intersects the budget line, which is at a price of $3 per bottle. At this price, the government can purchase 100,000 bottles (the quantity demanded at this price) with its budget of $300,000. Any floor price above $3 would not be feasible as it would result in a quantity demanded that exceeds the government's budget. Therefore, the maximum possible floor price is $3.

Refer to the Accompanying Figure