Question

The government has set a price floor on bread. Manufacturers can’t sell loaves for less than $5.00, which is a dollar above the market price. What will most likely result from the price control?A. The quantity demanded for bread will decrease, and the quantity supplied will increaseB. The quantity demand and quantity supplied for bread will increaseC. The quantity demand for bread will increase, and the quantity supplied will decreaseD. The quantity demand and quantity supplied for bread will decrease

Answer 1

Answer:

A. The quantity demanded for bread will decrease , quantity supplied will increase

Explanation:

PRICE FLOOR is the minimum mandated price set by government , usually above equilibrium price , to ensure producers' protection (if market price is perceived to be low) . EG : Minimum Support Price for agricultural products to protect farmers .

However at this raised price : There is Excess Supply , as Quantity Supplied increases with price increase (law of supply - price & supply direct relationship) , Quantity Demanded falls (law of demand - price & demand inverse relationship)