Question

The government has set a price floor on bread. Manufacturers cannot sell loaves for less than $5.00, which is a dollar above the market price. What will most likely result from this price control?
The demand for bread will fall, which could result in an excess supply.
The demand for bread will rise, which could result in an excess supply.
The demand for bread will fall, which could result in a decreased supply.
The demand for bread will rise, which could result in a decreased supply.

Answer 1

Draw the supply/demand curve. The line is above market equilibrium....the question literally states that the price rises, and since the supply curve has a positive slope (assuming unit elasticity), the supply will increase. Meanwhile, the demand curve has a negative slope (still assuming unit elasticity), so the demand for it will decrease. This will result in a surplus, aka, an excess supply.