# When the government imposes a binding price floor, it causes a. the supply curve to shift to the left. b. the demand curve to shift to the right. c. a shortage of the good to develop. d. a surplus of the good to develop.

### Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050

### Principles of Microeconomics

7th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305156050

#### Solutions

Chapter
Section
Chapter 6, Problem 1CQQ
Textbook Problem

## When the government imposes a binding price floor, it causesa. the supply curve to shift to the left.b. the demand curve to shift to the right.c. a shortage of the good to develop.d. a surplus of the good to develop.

Expert Solution
To determine
The impact of a binding price floor in the economy.

Option ‘d’ is correct.

### Explanation of Solution

The price floor is the minimum price that can be charged for the product in the market. This is to prevent the prices from going too low and creating a loss to the producers and service providers. The most common price floor is the minimum wages set by the government. The laborers should be paid minimum wages when their service is rendered.

Option (d):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. Thus, the price floor leads to the economic surplus in the economy. So, option ‘d’ is correct.

Option (a):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. This causes the movement up along the existing supply curve and there will be no shift in the supply curve. Thus, option ‘a’ is incorrect.

Option (b):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. Since the price is set by the government, the demand will remain the same and usually, the floor price will be set above the equilibrium price. It declines the demand and usually leads to a top-leftward shift in the demand curve. Thus, option ‘b’ is incorrect.

Option (c):

When there is a price floor in the economy, then the producers will get a minimum of the floor price and this will increase the revenue of the producers. This minimum guaranteed price would lead to the increased supply by the producers; more than the economic demand in the economy. This increased supply causes the economic surplus in the economy and not economic shortage. Thus, option ‘c’ is incorrect.

Economics Concept Introduction

Concept introduction:

Price floor: It is the minimum legal price set for a commodity or service by the government or the authority. This is to prevent the prices from going too low.

### Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Get Solutions

### Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Get Solutions

Find more solutions based on key concepts
Show solutions
Show that (nk)=(nnk). Give an interpretation involving subsets.

Probability and Statistics for Engineering and the Sciences

PORTFOLIO BETA An individual has 35,000 invested in a stock with a beta of 0.8 and another 40,000 invested in a...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Could the United States ever experience another Great Depression? Why or why not?

Microeconomics: Private and Public Choice (MindTap Course List)