The question requires us to determine the result of the
Explanation of Solution
Initially, the economy runs at point E in the given figure where,
When the government sets a price floor at $5, the price of a product increase from $4 to $5, and at this higher price,
Since the quantity supplied exceeds the quantity demanded, there is a surplus of product in the market.
Therefore, a price floor at $4 generates a surplus of 100 units in the market.
Option “b” is correct.
A price floor is an approach to regulating market price levels. The government always sets a price floor above the
Chapter 8 Solutions
Krugman's Economics For The Ap® Course
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