Question

Suppose that the government sets a price floor for milk that is above the competitive equilibrium price With the price floor, consumers are willing to purchase the quantity indicated where the price floor intersects the With the price floor, the deadweight loss is equal to the area curve. A under the demand curve and above the supply curve for units up to the quantity with the price floor B. above the supply curve for units between the quantity with the price floor and market equilibrium quantity. 0 c, under the demand curve and above the supply curve for units between the quantity with the price floor and market equilibrium quantity. D. under the demand curve for units between the quantity with the price floor and market equilibrium quantity.

Answer 1

Answer:

The correct answer is: demand curve; option C.

Explanation:

A price floor is the lowest limit fixed on the price of a product. It is imposed by the government to protect the producers.  

A binding price floor is fixed above the equilibrium market price. It is a horizontal line above the equilibrium price.  

The consumers are willing to purchase the quantity where the price floor intersects the demand curve.  

There is an excess supply as firms supply more at a higher price while the consumers demand less.  

Since there is a difference between the equilibrium price and what the consumers are willing to pay, there exists a deadweight loss. This deadweight loss is the triangular area below the demand curve and above the supply curve between equilibrium quantity and price floor quantity.