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Chapter 3: Q 29. (page 78)

Does a price floor attempt to make a price higher or lower?

Short Answer

Expert verified

Price floor attempts to make a price higher.

Step by step solution

01

Step 1. Define price floor.

When the price charged is greater than or less than the equilibrium price set by market forces of demand and supply, it is referred to as a price floor.

02

Step 2. Does a price floor seek to raise or lower a price?

A price floor is a legal minimum price below which a company will try to raise prices. A good example of price flooring is the minimum wage.

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Most popular questions from this chapter

What does a downward-sloping demand curve mean about how buyers in a market will react to a higher

price?

Will demand curves have the same exact shape in all markets? If not, how will they differ?

Review Figure 3.4 again. Suppose the price of gasoline is \(1.00. Will the quantity demanded to be lower or higher than at the equilibrium price of \)1.40 per gallon? Will the quantity supplied be lower or higher? Is there a shortage or a surplus in the market? If so, of how much?

Review Figure 3.4. Suppose the government decided that, since gasoline is a necessity, its price should be legally capped at $1.30 per gallon. What do you anticipate would be the outcome in the gasoline market?

The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each.

a. A rise in demand

b. A fall in demand

c. A rise in supply
d. A fall in supply
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