No Bull Economics Lessons

Macroeconomics & Microeconomics Concepts You Must Know

Basic Economic Concepts (5 of 10)

Question 5:
Suppose the government wants to help low income producers in the clothing market. The government decides that the best course of action is to establish a price floor that is below the free market price. What is the likely effect of this price control?

A.  A surplus of clothes.
B.  A shortage of clothes.
C.  Quantity supplied will increase.
D.  Nothing. Market will remain in equilibrium.

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Correct Answer:  D, Nothing. Market will remain in equilibrium.  An effective price floor must be placed above equilibrium price, which then it would lead to a surplus.

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