The table given below reports the quantity demanded and supplied of a commodity at different prices in a market.Table 3.5

-Which of the following is true of a price floor?
A)A price floor allows supply and demand to function effectively.
B)A price floor is set such that the price is not allowed to increase above a certain level.
C)A price floor is beneficial to buyers in a market.
D)A price floor usually creates a shortage of a good in a market.
E)A price floor is set such that the price is not allowed to decrease below a certain level.

Question

The table given below reports the quantity demanded and supplied of a commodity at different prices in a market.Table 3.5
 
-Which of the following is true of a price floor?
A)A price floor allows supply and demand to function effectively. 
B)A price floor is set such that the price is not allowed to increase above a certain level. 
C)A price floor is beneficial to buyers in a market. 
D)A price floor usually creates a shortage of a good in a market. 
E)A price floor is set such that the price is not allowed to decrease below a certain level.

Quizplus · Accepted Answer

A price floor is a government-imposed minimum price that is set above the market equilibrium price. It is designed to protect producers from receiving extremely low prices for their goods. However, when a price floor is set above the equilibrium price, it creates a surplus of goods supplied, as the quantity supplied exceeds the quantity demanded. Hence, option E is correct; a price floor is set such that the price is not allowed to decrease below a certain level.

The Table Given Below Reports the Quantity Demanded and Supplied