Refer to the information provided in Figure 4.3 below to answer the question(s) that follow. Figure 4.3
-Refer to Figure 4.3. If the government will not allow retailers to charge less than $0.50 for a pencil, which of the following will happen?
A) Demand must eventually increase so that the market will come into equilibrium at a price of $0.50.
B) Supply must eventually decrease so that the market will come into equilibrium at a price of $0.50.
C) Retailers will have an excess supply of pencils.
D) The market will be in equilibrium at a price of $0.50.

Question

Refer to the information provided in Figure 4.3 below to answer the question(s) that follow.  Figure 4.3
-Refer to Figure 4.3. If the government will not allow retailers to charge less than $0.50 for a pencil, which of the following will happen?
A) Demand must eventually increase so that the market will come into equilibrium at a price of $0.50. 
B) Supply must eventually decrease so that the market will come into equilibrium at a price of $0.50. 
C) Retailers will have an excess supply of pencils. 
D) The market will be in equilibrium at a price of $0.50.

Quizplus · Accepted Answer

Setting a minimum price above the equilibrium price (price floor) leads to excess supply because the quantity supplied at this price is greater than the quantity demanded. This does not automatically adjust demand or supply to reach a new equilibrium at the imposed price level.

Refer to the Information Provided in Figure 4