Exhibit 5-2

The diagram below represents the market for butter.
-Refer to Exhibit 5-2. If a price floor of $4 is imposed, a surplus of _____units of butter will be created.

Question

Exhibit 5-2
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The diagram below represents the market for butter. 
-Refer to Exhibit 5-2. If a price floor of $4 is imposed, a surplus of _____units of butter will be created.

Quizplus · Accepted Answer

A price floor of $4 means that the price cannot fall below that level. However, at that price level, the quantity demanded is only 3,000 units, while the quantity supplied is 7,000 units. This creates a surplus of 4,000 units of butter that cannot be sold at the government-mandated price. Therefore, C is the correct answer. A price floor above the equilibrium price always creates a surplus of the product because suppliers are willing to supply more than what consumers are willing to buy.

Exhibit 5-2 ​

Exhibit 5-2