Question

Suppose that the federal government places a binding price floor on chocolate. To help support the price floor, the government purchases all chocolate that consumers do not buy. If the price floor remains in place for a number of years, what do you expect to happen to the quantity of chocolate supplied by producers?
a. It will decrease.
b. It will increase.
c. It will remain the same.

Answer 1

Answer:

The correct answer is letter "A": It will decrease.

Explanation:

Price floors are price levels the government of a country sets to protect the price of a good will not fall to a level in which producers will not be able to make profits. Since the price level is unlikely to fall, over the years consumers will lose interest in that product and start looking for a substitute at lower prices. The quantity demanded of the price-floor good drops under that scenario.