Refer to Exhibit 5-9. If the government were to remove a $3.50 price floor in the milk market, the result would be:
A)a decrease in price and increase in the quantity of milk supplied.
B)a decrease in price and increase in the quantity of milk demanded.
C)an increase in both price and the quantity of milk supplied.
D)an increase in both price and the quantity of milk demanded.

Question

Refer to Exhibit 5-9. If the government were to remove a $3.50 price floor in the milk market, the result would be:
A)​a decrease in price and increase in the quantity of milk supplied.
B)​a decrease in price and increase in the quantity of milk demanded.
C)​an increase in both price and the quantity of milk supplied.
D)​an increase in both price and the quantity of milk demanded.

Quizplus · Accepted Answer

A price floor above the equilibrium price causes a surplus of milk, which means that the quantity of milk supplied exceeds the quantity of milk demanded. Removing the price floor would lead to a decrease in price and an increase in the quantity of milk demanded. Therefore, option B is correct. Options A, C, and D suggest an increase in the quantity of milk supplied, which is not a likely outcome considering the surplus that exists due to the price floor.