Question 15The current price in the market for milk is $2.00 If the government imposed a price floor of $4.00 in this market total surplus would ____________.1 pointincreasedecreasedecrease first, and then increasenot change
Question
Question 15The current price in the market for milk is 4.00 in this market total surplus would ____________.1 pointincreasedecreasedecrease first, and then increasenot change
Solution
The total surplus would decrease.
Here's why:
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A price floor is a minimum price set by the government that is above the equilibrium price. In this case, the price floor for milk is set at 2.00.
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When the price floor is set above the equilibrium price, it results in a surplus of goods, as the quantity supplied exceeds the quantity demanded. This is because producers are willing to supply more at the higher price, but consumers are willing to buy less.
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This surplus represents a decrease in total surplus, or economic welfare. This is because the price floor prevents transactions that would have otherwise happened at the lower equilibrium price.
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Therefore, the imposition of a price floor in this market would lead to a decrease in total surplus.
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